Broader markets are still largely clinging on to the post-election sentiment this week. However, today will add something different to the mix as we will have the US CPI report in focus. While inflation numbers haven't been too important in recent months, it is one that could still impact trading sentiment. That especially if the disinflation process meets a couple of bumps along the way.

And looking at the expectations for today's report, that might shape up to be the case at least for the October estimates.

Core monthly inflation is expected to nudge up by ~0.30% while headline monthly inflation is expected to nudge up by ~0.21%. Meanwhile, core annual inflation is expected to hold at 3.3% - similar to September. As for headline annual inflation, it is expected to come in a little higher this time at 2.6%.

According to Goldman Sachs, we should be seeing less disinflationary pressures from previously softer components such as airfares and used cars prices. Their estimates show the former increasing by 1.0% this month with the latter up 2.5%. So, that's one part of the argument.

At the balance, the report today should not provide a major reaction if within estimates. I reckon the balance of risks at this point is favouring an outsized reaction on an upside surprise, as compared to a downside miss.

Fed funds futures are showing ~63% odds of a 25 bps rate cut for December and that has been toned down since last week. If there is any upside surprise, the scope for a materially bigger shift in odds there is much wider as compared to a downside miss. So, that's the key consideration now.

Here's Goldman Sachs' playbook in terms of the S&P 500 reaction:

• Expects inflation to moderate in France
• Expects French unemployment rate to go up to around 8% before falling back

He is speaking somewhat in his capacity as Bank of France governor here. And the remarks aren't anything that stand out. As things stand, traders have fully priced in a rate cut for December. The odds of a 25 bps move are at ~68% with the remainder tied to a 50 bps rate cut.

Welcome to the US CPI Day! Inflation is back at the top of market's focus after the Fed's 50 bps cut in September, the acceleration in the US data and Trump's victory.

If we look at the markets, there's been already some pre-positioning/hedging into a potentially higher than expected CPI print, so there's some risk of a "sell the fact" reaction. Of course, a bigger than expected upside surprise would be much more straightforward.

The market is currently pricing a 63% chance of a 25 bps cut in December and basically two more 25 bps rate cuts in 2025 which is already much less than the four projected by the Fed in September.

13:30 GMT/08:30 ET - US October CPI

The US CPI Y/Y is expected at 2.6% vs. 2.4% prior, while the M/M measure is seen at 0.2% vs. 0.2% prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M figure is seen at 0.3% vs. 0.3% prior.

At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.

The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.

Therefore, higher inflation readings might not change the near-term monetary policy outlook, but I personally see it changing the market’s outlook and eventually the Fed’s one.

Central bank speakers:

• 09:45 GMT - BoE's Mann (hawk - voter)
• 14:35 GMT/09:35 ET - Fed's Logan (neutral - non voter)
• 18:00 GMT/13:00 ET - Fed's Musalem (neutral - non voter)
• 18:30 GMT/13:30 ET - Fed's Schmid (hawk - non voter)

Why it's important?

The ranges of estimates are important in terms of market reaction because when the actual data deviates from the expectations, it creates a surprise effect. Another important input in market's reaction is the distribution of forecasts.

In fact, although we can have a range of estimates, most forecasts might be clustered on the upper bound of the range, so even if the data comes out inside the range of estimates but on the lower bound of the range, it can still create a surprise effect.

Distribution of forecasts for CPI

CPI Y/Y

• 2.7% (2%)
• 2.6% (56%) - consensus
• 2.5% (28%)
• 2.4% (12%)
• 2.3% (2%)

CPI M/M

• 0.3% (17%)
• 0.2% (73%) - consensus
• 0.1% (10%)

Core CPI Y/Y

• 3.4% (8%)
• 3.3% (81%) - consensus
• 3.2% (11%)

Core CPI M/M

• 0.4% (4%)
• 0.3% (82%) - consensus
• 0.2% (14%)

Analysis

We can ignore the headline CPI as the market will focus on the Core figures. We can notice that we have a pretty strong consensus and not much skew on either side.

Nonetheless, there's been a consistent bid in the US Dollar going into this report with Treasury yields higher and stocks kinda rangebound. The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.

It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.

On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.

Fundamental Overview

The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might have also seen some pre-positioning in the past couple of days into a potentially hot US CPI report today.

At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.

The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.

The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.

It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.

On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.

EURUSD Technical Analysis – Daily Timeframe

On the daily chart, we can see that EURUSD broke through the key support zone around the 1.0777 following the Trump’s victor, retested it and eventually continued lower. We are now testing another key level at 1.06 handle, and this is where the buyers are stepping in with a defined risk below the level to position for a rally back into the 1.0777 level. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.05 handle next.

EURUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have a downward trendline defining the current bearish momentum. We can expect the sellers to lean on it to position for the break below the 1.06 handle, while the buyers will look for a break higher to increase the bullish bets into the 1.0777 level.

EURUSD Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we have a minor resistance zone around the 1.0630 level where we have the trendline for confluence. This is where the sellers are likely to step in with a defined risk above the trendline to position for the break below the 1.06 handle. The buyers, on the other hand, will look for a break higher to increase the bullish bets into the 1.0777 level. The red lines define the average daily range for today.

Upcoming Catalysts

Today, we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.

• There are still noticeable price pressures, especially in services sector
• Trump's tariffs may cause German economy to contract
• If tariffs come into effect, it could cost Germany 1% in economic output

And therein lies the dilemma for the ECB heading into next year I guess. The good news is that the disinflation process is still progressing, albeit with a few bumps along the way. All else being equal, the argument for further rate cuts should hold heading into 2025.

• Headline CPI reading not telling us that underlying inflation dynamics have been vanquished
• Services inflation is pretty sticky
• Energy prices are more likely to go up than down
• Sees more volatility and upward bias to some inflation drivers

Do keep in mind that Mann is arguably the most hawkish member among the BOE policy committee. So, her comments here are not as striking as they might seem to be.

Fundamental Overview

The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might have also seen some pre-positioning in the past couple of days into a potentially hot US CPI report today.

At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.

The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.

The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.

It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.

On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.

USDCHF Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDCHF broke through the key downward trendline following Trump’s victory and, after a brief pullback, continued higher as the trend in the US Dollar remains skewed to the upside.

We now have an upward trendline defining the current bullish momentum. If we get a pullback, we can expect the buyers to lean on it to position for a rally into new highs, while the sellers will look for a break lower to pile in for a drop into the 0.85 handle.

USDCHF Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that we have another minor upward trendline defining the bullish momentum on this timeframe. The buyers will likely keep on leaning on it to push into new highs, while the sellers will look for a break lower to start targeting new lows.

USDCHF Technical Analysis – 1 hour Timeframe

On the 1 hour chart, there’s not much to add here as the buyers will look for a bounce around the trendline, while the sellers will look for a break. The US CPI report today is going to be a major catalyst, so it would be better to wait for the release before taking any position. The red lines define the average daily range for today.

Upcoming Catalysts

Today, we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.

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WASHINGTON, D.C. – In response to today's violence at the U.S. Capitol Building, the following statement can be attributed to NAB President and CEO Gordon Smith:

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WASHINGTON, D.C. – Today, the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law is holding a hearing titled "Reviving Competition, Part 2: Saving the Free and Diverse Pres."

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Washington, D.C. -- The National Association of Broadcasters announced Charlyn Stanberry has joined the organization as vice president of Government Relations, effective today. Stanberry will report to Shawn Donilon, executive vice president of Government Relations.

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WASHINGTON, D.C. – National Association of Broadcasters (NAB) President and CEO Gordon Smith delivered remarks today at NAB's State Leadership Conference. The annual gathering of 500 radio and TV station owners and executives from all 50 states is designed to educate the broadcast industry to advocate on relevant legislative and regulatory issues. This year’s conference is a virtual-only event.

WASHINGTON, DC -- Twenty-five members of the House of Representatives and six Senators have added their support to a resolution opposing "any new performance fee, tax, royalty, or other charge" on local broadcast radio stations. The Local Radio Freedom Act (LRFA), which signals members of Congress's opposition to any potential legislation that imposes new performance royalties on broadcast radio stations for music airplay, now has 112 cosponsors in the House and 14 in the Senate.

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