The BLS will publish US August CPI on Friday, with forecasts pointing to a 0.4% month-on-month rise after 0.1% in July, while the year-on-year headline rate is expected to hold at 3.4%. Core CPI, excluding food and energy, is seen up 0.2% on the month and 2.4% on the year, though TD Securities looks for a 0.19% monthly gain and a 2.3% annual core rate, down 10 bps versus July. Oil dynamics remain in focus: crude jumped nearly 22% in July, then ended August virtually unchanged. Markets are also watching thresholds cited in pricing debates, with a sub-0.2% monthly core print viewed as dovish, while 0.3% or higher is treated as USD-supportive.<\/p>\n
Fed expectations are being recalibrated after comments from Governor Christopher Waller and firmer August employment data. The CME FedWatch probability of a 25 bps hike slipped slightly below 50% after Waller, but pricing later shifted, leaving about a 70% chance of a rate increase next week. In EUR\/USD, technical reference points cited include the 200-day SMA at 1.1635, resistance at 1.1700 and 1.1800, and support spanning 1.1560\u20131.1520, with further levels at 1.1460 and 1.1350; the RSI is described as holding above 50.<\/p>\n
We are looking closely at the upcoming US CPI release for August, which will heavily influence the Federal Reserve’s interest rate decision later this month. Current market estimates suggest headline inflation is hovering around 2.5% year-on-year, which is a major drop from the peak of 9.1% seen in mid-2022. Derivative traders should prepare for heightened volatility as any deviation from these estimates will immediately recalibrate rate expectations. <\/p>\n
If the core CPI print comes in higher than the anticipated 0.2% monthly increase, we expect a sudden surge in the US Dollar and a sharp drop in the EUR\/USD pair. In this scenario, we recommend buying short-term EUR\/USD put options to hedge against a downside break past the key 1.1000 support level. Conversely, a softer inflation reading would likely fuel a dollar selloff, making call options on major foreign currencies highly attractive. <\/p>\n
Historical data shows that CPI release days over the last two years have triggered average EUR\/USD moves of 60 to 80 pips within the first hour of the announcement. Because implied volatility in the options market is currently pricing in a relatively calm period, these contracts are currently priced quite cheaply. We suggest utilizing straddle or strangle strategies to capture large price swings regardless of which direction the inflation data points. <\/p>\n
Federal Reserve pricing currently indicates a strong likelihood of a rate pause, but a surprise spike in services inflation could quickly put a hike or a prolonged hold back on the table. Derivative traders should monitor treasury yields and rate swap markets closely, as they have historically adjusted within minutes of the CPI release. We believe positioning for a wider range of outcomes is the safest approach as the central bank remains strictly data-dependent.<\/p>\n\n\n\n