INFLATION GETS THE ATTENTION OF USD BEARS

It’s been a busy morning thus far as we’ve now seen two major rate decisions to go along with the release of August inflation numbers out of the United States. In somewhat of a surprising twist, it’s the inflation print that’s seemed to elicit a bit more volatility than what was seen out of the Bank of England and ECB rate decisions. While both the BoE and ECB came-in largely as expected, US inflation tilted lower and printed inside of the expectation of 2.8%. Last month printed at 2.9% so we were looking for a draw-down as it was, but this morning saw the print come in at 2.7%. This is the first drawdown to headline CPI out of the United States since December of 2017, and the corresponding move in the US Dollar was noticeable.

US HEADLINE CPI SINCE AUGUST, 2017

Chart prepared by James Stanley

The US Dollar had largely held the line as we walked into this morning’s BoE and ECB rate decisions, even posing a resistance test at 94.94 in the European session before the festivities got underway. But, as the BoE shared a somewhat expected tone while the ECB announced a widely-telegraphed reduction in bond purchases, USD held the lines of support. The release of August CPI came in right as the ECB press conference began, and this inflation data certainly appeared to get market participants’ attention as a quick rush of selling showed after the data printed.

US DOLLAR ONE-MINUTE CHART: BEARS TAKE CONTROL AT 8:30, DRIVE TO FRESH MONTHLY LOWS

Chart prepared by James Stanley

At this point, the US Dollar is hard-charging at the August swing-lows around the 94.50 level. Given the veracity with which this selling pressure has shown, that support may not be able to hold up the declines for long. If it does elicit a bounce, the door could quickly be re-opened to short-side strategies, looking for that theme of USD weakness to continue on to fresh monthly lows.