The bottom line is that if the number surprises strongly like last time, the USD is likely to quickly reverse yet again its losses of the past week as the market prices more aggressively for more Fed hikes in September and beyond. Conversely, a number that can be termed ‘weak’ would allow the market to toy with the idea of pricing in no further hikes after this month, compared to the roughly 40% chance of a further 25 bps after this month’s hike now priced in. 

From our perspective, EUR/USD is still too far from the upper end of our expected Q3 1.0500-1.1250 range (same as Q2) to make a short trade a good risk/reward one, even if we tend to line up on the side of upside CPI surprises. Similarly, at around 140, USD/JPY is not yet close enough to the extremes of our expected Q3 range of 135-152 to present a compelling case to buy. While frustrating, we feel it is best to stay focused on trade location at a time of high sensitivity to individual data points.