A1 Trading

Trading Into CPI Tomorrow

December 11, 2023
Frank Cabibi

Tuesday's CPI report is expected to come in mixed. Core is higher, y/y is lower, m/m is unchanged. Here are some ideas for dollar based pairs as we approach tomorrow's news.

EdgeFinder Analysis

The US30 (DOW, DJI, DIA) is now the most bullish asset on the EdgeFinder. It has every category beat except for interest rates considering now that the 2 year yield is rising above its moving average. The dollar is getting a little strength to start the week as we wait for CPI tomorrow.

Dollar bears are hoping for a lower CPI across the board. Although the overall trend on inflation is downward, any spike above the expectations could still trigger a bullish reaction for USD. This would cause risk-on assets such as US30 to fall, and vice versa if CPI was lower.

Gold on the 1D timeframe looks weaker after breaking a couple strong levels of support. After last Monday's top-out, the metal has declined a furious 7.5% in the span of one week. After price broke under the $2000s level and rising trend line, the metal may not have a strong level of support until the $1930s.

Despite where inflation goes, it is unlikely that the Fed will raise rates this week. What this sell-off seems to look like is a profit-taking move and now an overextended move to the downside. Traders will just have to wait for gold to cool down in either direction before trading becomes feasible again.

GU is now a neutral reading on the EdgeFinder which used to be a strong bullish reading. COT still favors USD overall but there seems to be more of an interest in the pound from last week's report. Seasonality suggests another month of gains for the pair.

Retail, however, is mixed with a bearish lean. Tomorrow is also a jobs numbers day for the UK which is expecting to come in higher than last month meaning higher number of unemployed persons. GBP also has GDP and interest rate decision this week, so GU will be volatile for a handful of trading days.

Retail Spotlight

Retail is strongly short bias on indices and mixed dollar. Gold is also mixed as well. The contrarian signal suggests that indices are going to see some more upside, however.

Smart Money Spotlight

COT suggests heavy buying in the risk-on category assets. Seeing US30, GBP, AUD and NZD in the top four most bought shows that investors are not anticipating dollar strength. USOil and Platinum are the top sells from smart money as well suggesting that inflation is not going to run as rampant as feared.

Fundamental Spotlight

US indices share the same inflation score of +1 overall as we saw a decline in CPI. However, inflation is higher than the target range of 1-3%. Core is looking good as investors need to see further decline in that number to have a good idea on the Fed's plan.

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