US inflation preview: Expect a disappointment – and a downing of the dollar


  • The US inflation report for July is critical for the Fed and for the US dollar. 
  • FXStreet's Surprise Index is pointing to a potential disappointment.
  • In case of a miss, the US dollar may drop.

The Federal Reserve has cut rates due to trade tensions – which have since flared up – and low inflation. While trading President Donald Trump's tweets may be confusing, the Consumer Price Index (CPI) numbers are straightforward. 

The next rate decision of the Federal Reserve depends heavily on price development that excludes volatile items such as energy and food – Core CPI – which has risen by 2.1% in June. The economic calendar is pointing to a repeat of the same level in July. 

Trading the dollar on the news is rather straightforward. An acceleration to 2.2% or higher would boost the greenback while a miss of 2% or lower may send it lower. 

What are the chances of a surprise to either direction? This is where our proprietary tool comes in.

More chances of a disappointment than a positive surprise

FXStreet Surprise Index quantifies, in terms of standard deviations of data surprises (actual releases vs. survey median), the extent to which economic indicators exceed or fall short of consensus estimates.

Examining data surprises dating back to 2011, we see a long-term deterioration. In recent months, the index has broken below the -150 level and hit a new low of -178. An attempt to recover has failed to recapture -150 and the indicator fell back down – reflecting a dead cat bounce pattern. A break below the previous record low has yet to materialize, but the downside seems more appealing after an unsuccessful recovery attempt. 

US inflation surprise index August 13 2019 long term

Taking a closer look at data since early 2018, and the picture remains bleak. While we can see an uptrend support line accompanying the surprise index for a long time, it remains.

More closely, the support line is going in the wrong direction – down. A downside disappointment seems more likely than an upside one. Even if the indicator recovers, downtrend resistance looms above.

US inflation surprise index August 13 2019 short term

Conclusion

The FXStreet Surprise Index shows a higher likelihood of a downside surprise than an upside surprise. While such a disappointment may be minor – perhaps Core CPI will rise by only 2% against 2.1% YoY – the dollar's sensitivity to any deviation in inflation may send it down.

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

USD/JPY extends the bounce above 108.50 on rising trade deal hopes

The USD/JPY pair extends its bounce from eight-day lows of 108.25 in Friday's Asian trading, with the bulls regaining control above 108.50 after White House Economic Adviser Kudlow's comments bolstered US-China trade deal hopes. 

USD/JPY News

AUD/USD looks to regain 0.6800, trade optimism underpins

With the latest trade positive comments from White House Adviser Kudlow, AUD/USD seems to have picked up a delayed bid, now testing the 0.68 handle. The spot extends its recovery from monthly lows of 0.6769. 

AUD/USD News

USD/JPY extends the bounce above 108.50 on rising trade deal hopes

The USD/JPY pair extends its bounce from eight-day lows of 108.25 in Friday's Asian trading, with the bulls regaining control above 108.50 after White House Economic Adviser Kudlow's comments bolstered US-China trade deal hopes. 

USD/JPY News

US Dollar Index: DXY suck at monthly highs near 98.40 level

DXY (US Dollar Index) is trading in a bull trend above the main daily simple moving averages (DMAs). This Thursday the Greenback is once again challenging the 98.40 level while trading just above the 50 DMA.

US Dollar Index News

WTI testing offers near $ 57 amid trade optimism, ahead of US data

WTI is looking to extend the overnight bounce above the 57 handle, as the bulls find some solace from the renewed US-China trade optimism after both trade teams agreed to meet over trade talks later on Friday. 

Oil News

Forex Majors

Cryptocurrencies

Signatures