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CPI Expectations Going Into Wednesday

September 11, 2023
Frank Cabibi

Inflation numbers are expected to come out this week higher than previous reports for the year-over-year and month-over month rates. Core CPI is anticipated to stay where it's at. Here are the setups that could be worth considering in this hawkish environment.

EdgeFinder Analysis

EURUSD is now at a -10 on the EdgeFinder making it the strongest bearish reading right now. On a technical and fundamental level, the dollar sweeps the Euro in all categories. On the market sentiment side, COT has increased its long position while getting increasingly short EUR. Retail shows over 60% long this pair which suggests further downside as the EF scores opposite of retail positioning.

This month is historically bearish on a 10-year average, in fact, September is the most bearish month of the year for EU. Because US CPI is expected to rise, investors are taking this as somewhat hawkish news going in to Wednesday's report adding to further dollar strength.

Gold looks mixed on the recent inflation expectations. On the 1D timeframe, price has struggled to break higher above a falling trend line that has kept the selling pressure on this metal. There are still buyers trying to push price higher although it is met with rejection at the highs of candle interval.

Wednesday's CPI expectations are hawkish going into the news as m/m and y/y are expected to rise while the Core CPI is expected to remain unchanged. Higher inflation and stubborn Core expectations could mean dollar bullishness until the numbers come out.

USDCAD sits at a +8 "Very Bullish" reading. The trend reading and seasonality are starkly opposite EURUSD as September is historically the most bullish month for the pair. COT is also pointing towards a bullish lean on this pair as smart money gets rid of nearly 3% of their long positions on CAD.

The only category that CAD is beating USD in is inflation. If we see a rise in CPI m/m on USD Wednesday, this could mean an increasingly bullish reading for the pair as higher inflation will likely prompt the Fed to continue raising interest rates.

Retail Spotlight

Retail is still short the USD as they are favoring the risk-on pairs over the risk-off ones. Gold continues to be mixed, and GBPUSD is in the same boat. USO is mostly short regardless of the uptrend and higher inflation expectations going into Wednesday's report.

Smart Money Spotlight

The only clear sentiment biases are on USOil, AUD and ZAR. The bottom chart shows oil's net positioning over time which has increased in the past three weeks. Higher CPI expectations in the US are likely driving prices higher as well as diminishing production.

Fundamental Spotlight

Here are the inflation rates for the USD since January 2020. Due to the recent rise in inflation m/m, investors are now worried for further rate hikes in 2023. CPI has not risen since the early half of 2022, so seeing an uptick is mildly concerning for risk-on investors. And if we see another uptick on Wednesday, this will only add to the mounting risk-off sentiment favoring the dollar.

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