The first real moment of truth for US CPI has finally arrived.
Due to the very low base effects from the pandemic induced economic slowdown in Q2 of 2020, a lot of the YY data points for Q2 in 2021 are expected to see some meaningful upside.
Much of which would – and could – be explained away by easy YY comparisons.
However, according to a few market analysts, there is scope for inflation to surprise higher than markets are currently expecting, and that there might be a chance it runs for longer than the FED currently anticipates.
Some of the recent data such as ISM Mfg & N-Mfg Prices Paid, PPI’s and of course higher commodity prices – are signalling the potential for higher inflation. But the real question is “how much inflation”- and whether it will have a more sustainable reaction in prices.
Why is all of this important you may ask? Bonds. They don’t like inflation. So, if we do see hotter than expected CPI data that will likely impact US10Y, which has been the main driver for price action in the USDJPY and GOLD from the start of the year.
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Highlights of the video:
00:46 – Current Baseline
03:31 – Baseline expectations for the upcoming week
08:07 – Sentiment Shifts & Trade Plan