What are the main events for today?

The main event in the European session was the release of the UK CPI report. The data missed expectations across the board and reinforced the expectations for a 25 bps cut at the upcoming BoE’s meeting. The focus is on the US CPI report though as this release will likely set the trend for the next weeks.

13:30 GMT/08:30 ET – US December CPI

The US CPI Y/Y is
expected at 2.8% vs. 2.7% prior, while the M/M measure is seen at 0.3% vs. 0.3%
prior. The Core CPI Y/Y is expected at 3.3% vs. 3.3% prior, while the M/M
reading is seen at 0.2% vs. 0.3% prior.

This is the most
important release of the month, and another hot report will likely cause
some trouble in the markets with the stock market looking as the most
vulnerable right now. Following the strong NFP report, the expectations are
now for just one rate cut this year, which is below the Fed’s projection of two
cuts.

The repricing has
been pretty aggressive in the last few months and the data definitely made the
50 bps cut look like a big mistake. Nonetheless, the Fed has paused the easing
cycle and switched its focus back to inflation with several members citing inflation
progress as a key factor for the next rate cut (they will want to see it closer to 2%).

The best
outcome would be a soft report given the overstretched moves in the markets caused by the repricing in
rate cuts expectations. That would likely reverse most of the recent trends
and trigger a rally in bonds, risk assets like stocks and bitcoin and lead to a
selloff in the US Dollar.

Central bank speakers:

• 08:00 GMT – ECB’s de Guindos (dove – voter)
• 08:30 GMT – ECB’s Villeroy (dove – voter)
• 08:35 GMT – ECB’s Vujcic (neutral – voter)
• 13:00 GMT/08:00 ET – Fed’s Barkin (neutral – non voter)
• 15:00 GMT/10:00 ET – Fed’s Kashkari (hawk – non voter)
• 16:00 GMT/11:00 ET – Fed’s Williams (neutral – voter)
• 16:30 GMT/11:30 ET – BoE’s Taylor (neutral – voter)
• 17:00 GMT/12:00 ET – Fed’s Goolsbee (dove – voter)

This article was written by Giuseppe Dellamotta at www.forexlive.com.