US CPI On Watch 

Today’s US CPI data will be closely watched as traders continue to try and gauge which way the Fed is likely to go with rates later this month. Ahead of the SVB collapse and subsequent market turmoil, traders had been looking for the Fed to push ahead with a larger .5% hike. Powell’s comments last week regarding the likely need for the Fed to hike rates faster and further than previously thought were the icing on the cake for USD bulls which had been pegging their hawkish Fed views on better US data and stronger January inflation.

Fed Outlook in Focus 

However, on the back of the SVB collapse, rate hike pricing has switched back in favour of a smaller .25% hike this month with some looking for no hike at all. Friday’s jobs data showed that jobs growth fell back from the high levels seen in January along with a drop in wages growth.  Looking at today’s data, the market is forecasting CPI to have cooled last month which, if seen, should confirm a smaller hike from the Fed. Additionally, if CPI is seen falling more than expected this might well bolster the view that the Fed will opt to pause rate hikes for now while it monitors the SVB fall-out.

USD Risks

In this scenario, USD will come under further heavy selling pressure while US stocks will likely find a little reprieve, temporarily at least. However, if inflation is seen rising last month, this will make the picture a lot harder to call and will no doubt exacerbate uncertainty, weighing on stocks near-term.

Technical Views

USDJPY

The correction lower in USDJPY has seen the market trading back down to test support at the 132.91 level. Price is holding here for now though, should today’s data come in at or below forecasts, this might well open the pair up to a further drop lower with a test of the bull channel lows coming in ahead of the 127.24 level.