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Inline CPI Print No Game Changer for M/T USD Trend

CROSS ASSET
  • We flagged ahead of today's data that markets were pricing in a more muted response to the inflation release this month, with break-evens on an overnight USD straddle considerably narrower relative to pricing ahead of other 2023 CPI prints: https://marketnews.com/fx-vols-anticipate-more-mut...
  • So far, price action has been contained to trade within expectations, meaning the inflation release has been no game changer for medium-term currency trends.
  • The break below uptrendline support in the USD Index had already opened a consolidation phase for the greenback, with the index trading either side of the 50- and 100-dmas for 8 consecutive sessions. Mirroring this, positioning data shows markets continue to trim the net long USD position and data correct as of the Aug 1st close shows markets closest to neutral on the dollar since mid-2021.
  • This leaves market focus on the crosses and particularly the JPY, with EUR/JPY already printing the best levels since 2008 post-CPI. Congestion resistance at Y158.00 has broken, making for a considerable bullish break Thursday.

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