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Trader thoughts - preparing to react dynamically to the US CPI print

Chris Weston
Head of Research
Dec 12, 2022
We look ahead to US CPI at 00:30 AEDT / 13:30 GMT – the first big event risk to drop this week – with expectations that US core CPI falls to 6.1% (from 6.3%) and headline to 7.3%. The distribution of economists’ estimates range from 6% to 6.3%, and for those hoping for the mystical ‘Santa Rally’ then the 6% call is where they really want to data to land at – a 5-handle even better. The idea that CPI is headed in the right direction means the market should be more sympathetic to a hawkish Fed and certain market players chase risk.

As it is, we’re seeing moves made and traders massaging exposures into that pivotal data point - we’ll see similar in Asia today – in equity, we’re seeing the US30, US2000, NAS100 and US500 all making moves higher – we see the US30 is the outperformer (+1%), and outperformance in the US30 has been true of late when US Treasury yields are rising, which is what we’re seeing across the US Treasury curve today – 2yr Treasuries are +6bp at 4.40%

We know there is ‘triple witching’ this Friday, with quarterly options expiration, and given where the level of open interest the possibility of the US500 remaining in a 3900-4000 range seems elevated. We’re seeing that today with the US500 pushing up 0.8% and currently near session highs, although volumes are subdued with 1.28m S&P500 futures contracts traded. The daily chart shows clear support into 3930/3910, so this needs to hold and I suspect it will unless we get a strong core CPI print above 6.3% and that is an outcome have no more insights than anyone else.

US500 daily


In the options world, we are seeing a higher put/call ratio (currently 0.95), so there has been some demand to hedge potential equity drawdown, while implied vol in both S&P500 1-month put and call options have risen modestly, although skew is not at any extremes.

Equity may have seen modest upside, but the USD has worked reasonably well, with the DXY +0.4% but higher vs all G10 FX. USDJPY has seen the big percentage move (+0.9%), with a view to track US treasury yields higher. No real buy signal on the daily in the USD pairs, but USDJPY is shaping up better than most and a break above 138.11 would tempt a momentum long for 140.

AUDUSD daily


AUDUSD trades heavy, with sellers coming in at the range highs – inspiration has been taken from Chinese equity markets kicking lower on the session (CHINAH index -2.8%) and we’re seeing modest buying in USDCNH. EURUSD sits at the lower limits of the 1.0506 to 1.0580 daily range, with the sellers getting an upper hand and price eyes the 7 Dec low of 1.0443. GBPUSD is another pair likely to get good attention from clients this week tracks a 1.2209 to 1.2299 range.

Commodities track a different path and there is dispersion in the price moves in the complex – we’re seeing good flow in XAUUSD, and the net exposure is 56% of open positions (by Pepperstone clients) are held short. The $1800 level needs work and there is wood to chop to get through here – a weak US CPI print would be the trigger where we’d see 2yr yields trade lower and subsequently weigh on the USD. Conversely, a strong CPI print sees XAU target the 5 Dec low of $1765, where a close below suggests a further decline into $1740 – For now, the higher timeframes suggest a sideways market and it needs work.

SpotCrude has found good buyers with a bout of mean reversion kicking in – clients are long and strong (69% of open positions are held long) and while we’re away from a momentum buy signal, the mean reversion players have been solid buyers, notably with price at a 15% discount to the 50-day MA. Near-term I am looking for higher levels – that being $76.50 - to fade the move. Nat Gas gapped higher on open, but the intraday tape is heavy, and I like this short into rallies to $6.46/50 – as always when playing with a market that has spiked up 105 on open position sizing should be a primary consideration.

It's onto US CPI – the big landmine of the week – it naturally pays to be in front of the screen, as you have more control to react. Risk and position management are where we stay in the game.  

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