The market is highly juiced for todays CPI report. While the equity market in particular has already anticipated solid inflation figures (as expected or weaker) in advance - so that the narrative of imminent interest rate cuts can be continued and further ATHs are justified -, the dollar is still comparatively firm. In the first two weeks of trading, the dollar index (=DXY) showed more the picture of a consolidation pattern, which should soon be resolved either upwards or downwards. The actual trading range was between the 102.00 and 102.75 marks, with a somewhat larger 101.91/103.10 trading range being printed last Friday.
If the stock market is right, the dollar should tend to fall today after the figures. Lower key interest rates coupled with an extreme rise in government debt are not dollar positive:
”In this respect, yields must continue to rise as the U.S. deficit continues to be inflated to keep attracting dollar buyers. There is only one problem: Many US banks are already under considerable pressure due to the negative market values of their bond portfolios. It is therefore likely to be only a matter of time before the FED attempts to stabilize the interest rate level and thus bond prices by adjusting its interest rate outlook.” (MC #168 - 20oct23) - Powell finally stepped onto the dovish path at the last FED meeting.
In this respect, dollar bulls need an upward surprise today to dampen the dovish expectations somewhat. Or there should at least be some kind of reality check that core inflation of 3.8% (exp) is still almost twice as high as the 2% inflation target. Both could eventully help the dollar in the short term. But it remains to be seen which market result will materialize this afternoon (european). All I can say is that the market is probably more willing to follow the trend. This would then result in a further positive risk sentiment and theoretically a lower dollar. In my personal view, I consider the risk sentiment to be too positive, but would not ultimately derive any dollar strength from it for the reasons mentioned above.
In the medium term, the dollar is still trading in the wider 100.80/104.25 range slightly skewed to the bottom. I am more willing to fade rallies than buy dips.*
Good luck,
Sebbo
(*reminder: my content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances.)