Kashkari drops the 'p' word ahead of US CPI, USD/CHF stands firm

With Kashkari throwing the word ‘pause’ into the mix ahead of a US CPI report, traders should brace themselves for further USD gains should it come in hotter than expected.

Inflation data has been trending lower for a while, but the fight against it is not over. Especially with Trump 2.0 now in motion, which investors fear will bring higher levels of inflation. Core CPI remains well above the Fed’s 2% target at 3.3% y/y, curled higher by 0.1 percentage point in September and also posted its second 0.3% m/m print in a row. Producer prices also crept higher in September, and the prices paid components of manufacturing reached a 5-month high and services remains elevated at 58.1%.

While a dire NFP job growth figure instilled confidence of more Fed cuts, there seems to be concern from some Fed members that inflation could heat up, even before Trump pick sup the keys to the Whitehouse. On Tuesday, FOMC voting member Kashkari said that “if inflation surprises to the upside before December, it might give us pause”. That is a stark warning that a December cut from the Fed is not a certain at all. Kashkari also noted a strong labour market and that it may take a year or two to get inflation all the way down to 2%. Add Trump’s desire to bolster American jobs into the mix, and you begin to see the problem the Fed face.

Kashkari is also scheduled to speak just as US inflation figures drop at 13:30 GMT, potentially providing a real-time reaction from a voting member on an inflation figure that matters.

00:30 - US CPI, FOMC member Kashkari speaks
01:30 – FOMC member Williams speaks
01:35 – Fed Logan speaks

The 1-day implied volatility is slightly elevated for USD/CAD and GBP/CAD ahead of today’s CPI report
The IV level is sat at its 20-day average for USD/JPY and AUD/USD
USD/CHF IV may be understated at 91% of its 20-day SMA, should US inflation come in hot

USD/CHF technical analysis

Futures traders remained heavily short Swiss franc futures last week, and aggregate positioning for the USD was net long. And with traders betting on inflationary policies in the US while the Swiss National Bank want a weaker currency, long USD/CHF has been the play. It shares a strong positive correlation with the USD index, although its rally has lagged in comparison and has paused for breath around the June and July lows.

The 1-hour chart shows prices consolidating at the highs and the recent 1-hourb candle respected the 20-bar EMA. The bias is to seek any dips towards the August high in anticipation of another leg high and target the 89 handle, just beneath the July high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.