USD: June CPI to set the tone – ING

FX markets have had a quiet start to the week. The risks of new Russian sanctions highlighted here yesterday were actually less harsh than expected in that they gave Russia 50 days to reach a deal (ceasefire with Ukraine). Energy prices ended a little lower, ING's FX analyst Chris Turner notes.

Bias for DXY to edge to fill a gap to 98.35

"And overnight, we've probably seen a couple of risk-positive developments. China's second-quarter GDP was a little stronger than expected, and Nvidia seems confident it will be able to start exporting its H20 chips to China again – confirming a thaw in US-China relations. Equity futures are called a little higher today. On the subject of equities, we start to see second quarter US earnings releases today, with JPM, Citi and Wells Fargo all reporting. Expectations are that trading income will offset moribund investment banking and deliver some decent results."

"The main event, however, is the release of June CPI. Our rate strategy colleagues discuss its impact on their markets here. For FX, the reaction should be balanced in that any higher/lower deviation from the 0.3% MoM consensus should lead to a higher/lower dollar. For reference, the US interest rate curve still prices 16bp of Fed easing in September, a move we think will be priced out over the coming months."

"We have a slight bias that DXY can edge to fill a gap to 98.35. Though a sub-consensus CPI would prove a setback. Elsewhere, we've got Canadian June CPI today. Any downside miss can bring forward the expectations of the final cut in the Bank of Canada cycle and soften the CAD."