It's been a pretty slow session as the lack of important data releases and limited newsflow kept the price action at bay. The only highlight was the US NFIB Small Business Optimism Index which jumped to the highest reading since June 2021 in another sign that the US economy is picking up steam.

The inflation risk and the Fed's reaction function in 2025 will be the biggest focus of markets, especially in the current context of stretched valuations and heavy risk taking. The complacency and animal spirits resemble a lot the 2021 mania.

The focus this week is on the US CPI report tomorrow. It looks like the Fed really wants to cut next week before pausing for some months. So, we might need a notable upside surprise in the core inflation numbers to force them to change plans.

Even if the Fed decides to cut next week despite a hot CPI though, the market will likely scale back further the rate cuts expectations for 2025 and that could trigger some risk aversion with the US Dollar rallying across the board and risk assets being sold.

The best case for the risk sentiment is a soft report tomorrow. That will likely see the US Dollar offered across the board given the overstretched positions.