US inflation preview

Today's release of Consumer price index (CPI) numbers will be most watched by traders and investors. CPI is scheduled to be released at 12:30 GMT.

Why important?

• FED's dual mandate is price stability and maximum employment. However, Unemployment rate has now reached 5.4% in US, which is considered as very close to long term level. That leaves inflation to be most vital for subsequent hikes.

• Moreover this is one of the high profile release before FOMC in September. So the reaction stands very crucial.

Past trends -

• CPI fell to negative territory in later half of 2014. In January CPI fell by -0.7% on monthly basis, mostly due to lower energy prices. CPI fell by -0.1% YoY in January.
• CPI has recovered from negative since then, with monthly CPI rising more than 0.2% (average) since then. In June CPI grew by 0.3%.
• Yearly CPI growth staying below zero till April has recovered to +0.1% in June.

Expectation today -

• CPI is expected to rise by 0.2% m/m and 0.2% yearly basis.
• Core CPI is expected to remain stable, growing at 1.8% on yearly basis.

Impact -

• CPI data is likely to add volatility, however focus is more on US labor market that inflation for this year's first hike. So down beat CPI might not generate large downside for Dollar, however surprise on the upside, especially for the core components would push Dollar higher.
  
  
• Treasuries are likely to slide if CPI overshoots or even come as expected, pushing yields higher.

FXCM US Dollar index is currently trading at 11994, resistance lies at 12012 and support at 11972.