When Metallica wrote “Nothing Else Matters” they wrote it about US CPI. Tonight’s print is IMPORTANT. The last 5 consecutive CPI prints have come in under expectations. Its weighed on US Treasury yields and Fed rate hike pricing and been the main cause of USD weakness . Tonight’s headline number is expected to rise 0.3% (mom) and 1.8% (yoy). There is upside risk to the headline with the 5% uptick in gas prices post hurricane Harvey. The more important core measure ex food and energy is suppose to rebound to 0.2% (mom) and 1.6% (yoy) v 1.7% prev. The market will appreciate a healthy headline number but will move on the core number. Core comes out as expected and rebounds or marginally beats expectations – yields will fly and you wont find an offer to buy USD. We have very aggressive signs of USD trend reversal and this print can confirm that . Core misses – market is back selling USD . Its that simple. Risk is a decent number… so will keep the faith in USD longs and will keep book positioned that way going into it.
US 10yr yield chart below sums up the situation. Price has been trading in a big bullish flag continuation pattern. A topside break is expected. The top of trend channel now drops to approx 2.5%. Yields at mom have popped back to is 2.19%. Good CPI we may get the 2.5% break. A break of the trend channel is VERY BULLISH yields and USD. Keep a close eye on this. Tax policy is suppose to drop end of Sept. Another fundamental reason to give the tech pop momentum. Could be big trade coming here and need to be positioned for it before the break !