Trading volatility: USD on US CPI
Tuesday sees the release of US consumer price inflation data which may provide some volatility around the US dollar.
Headline CPI growth is forecast to accelerate to 3.8% in October year-on-year (YoY), from 3.7% in September, but could the release provide an upside risk?
With the Fed's recent hawkish comments, questions must be asked around what the Fed knows about these figures that the market is waiting for?
Core CPI growth is expected to remain at 4.1% YoY.
(Video summary)
US CPI data
Next week, there's going to be a lot of trading activity, especially when it comes to US inflation.
On Tuesday, November 14th, we'll get some new information about consumer price inflation (CPI). The forecasts show that the growth rate will speed up to 3.8% in October, compared to 3.7% in September. The big question is whether the risk is on the upside or not.
USD/JPY
Another thing to look out for is the core CPI growth, which is expected to stay at 4.1% year-on-year (YoY). People are wondering if the Federal Reserve (Fed) has any inside information on these numbers before they're officially released. If there's indeed a risk on the upside, it's expected that the US dollar will become stronger compared to many other currencies. One currency pair that people are particularly interested in is the US dollar against the Japanese yen.
The Bank of Japan (BoJ) hasn't made any moves on interest rates, and there's been selling pressure on the yen. So it's unlikely that there will be any significant change in the near future.
However, if the data supports it, there might be further restrictions on monetary policy next year. This brings up the question of whether the Bank of Japan will raise interest rates. That could be the only reason why someone would want to buy the Japanese yen at its current levels.
But, if the US CPI data turns out to be stronger than expected, it's highly likely that the price target of 151.95 will be reached, just like it was in October last year. Back then, the Japanese authorities intervened by buying the yen, which caused the dollar to fall to a support level of 127.25. Since then, there's been more interest in buying the dollar because US interest rates have gone up. So it's possible that the dollar will rise above the mentioned price target if Tuesday's CPI data turns out to be stronger than people expected.
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