At least that will be the case for broader market sentiment. The dollar is steadier today but owes much to a push higher in USD/JPY, with the Japanese yen easing lower as gains from the Ueda announcement last week begin to level off. The pair is up 0.6% to 132.20 as the volatile swings in the yen continue to play out.
Meanwhile, US futures are leaning towards the softer side while bonds are little changed to start the day. It seems like markets are feeling rather tense ahead of the US inflation data tomorrow. That will surely set the tone for how we will trade for the remainder of the week.
In terms of estimates, the headline annual inflation is expected to ease further to 6.2% from 6.5% in December (last month's release). Meanwhile, the core annual reading is also estimated to decline to 5.5% from 5.7% in December. That is despite 0.4% monthly increases estimated for both the headline and core readings.
Even though the estimates are siding with yet another softer set of inflation figures, I would argue that the pain train looks to be coming regardless of what the data might suggest.
There has been so much pushing and pulling last week that there is a sense that market players on both sides are feeling rather angsty at the moment.
A softer report, as per estimates, will continue to fuel risk trades and pin the dollar lower. That will give broader markets some added relief that their forecast for the rates and economic outlook are still being vindicated, and that may likely see the Fed caving in further in the months ahead.
On the flip side, a hotter report will surely see a strong squeeze in stocks and bonds. That is going to also see dollar bulls push the agenda after having defended key technical levels in the past week or so. I think that is a move that could really set off fear in the market with 6% Fed funds rate then not looking too far-fetched.
