Attention turns to the US June Consumer Price Index (CPI) print. Economists at TD Securities think it remains premature to fade the USD if either scenario pans out.

EUR/USD rallies are a fade

“We will need to see a string of softer inflation prints before we get more comfortable on USD resilience fading. We note, however, that the market setup into this CPI report is notably different than the last.”

“The forecast distribution is pretty evenly split between a 0.5% and a 0.6% MoM reading. Last time, the market was largely huddled around 0.5% and 0.4%. So, with the market expecting a strong print, the shock value may be a bit less this time around (unless core CPI prints above that distribution).”

“The USD is already trading on a much firmer footing than the last report. That may limit the shock value on FX, though much of the recent strength has come off the back of EUR's decline to parity so we are reluctant to read too much into this. So, it may just come down to the underlying details of the report, which by our account should remain pretty robust.” 

“And despite a long build in the USD, it still tracks modestly cheap on a cross-asset FV basis, leaving us to fade EUR/USD upside.”

Also read: US CPI Preview: Forecasts from 11 major banks, new peak but at headline