The US inflation data is due out today. A softer month-over-month core print will exacerbate positioning which has moved to swiftly reduce USD longs recently and support risk. That risks testing key levels in EURUSD and USDJPY, economists at TD Securities report.
Modest Core CPI relief
“We are looking for core prices to have stayed strong on a MoM basis despite our expectation of slowing vs September. Indeed, we forecast a still solid 0.4% MoM gain in the core CPI series. In terms of the headline, we expect inflation to register its largest MoM increase in four months at 0.6%. Our MoM projections imply that headline and core CPI inflation likely lost speed on a YoY basis in October.”
“A softer monthly core CPI print will likely exacerbate risk-on sentiment that a terminal rate at or above 5% may be enough to curtail the worst inflation in decades. This is likely to extend FX positioning which has aggressively moved to reduce USD longs by our estimates.”
“We think there is a risk that even a positive surprise on CPI could trigger a positioning squeeze though the sustainability of that could be questioned.”
“We think USDJPY would risk a test of 143.75 if our core CPI print is realized, while EURUSD will be exposed to 1.01-1.02.”
See – US CPI Preview: Forecasts from 13 major banks, inflation coming down only slowly