Today brings the top of the top-tier data from the US – the Consumer Price Index (CPI) report. An upside surprise could provide support to the Dollar, economists at MUFG Bank report.

Momentum favouring the US Dollar at the moment

“An upside surprise today may still not shift the dial too much. Certainly, if there are upside surprises in more volatile components today, the reaction may be more muted than in previous CPI overshoots. Nonetheless, there must be a risk of a further liquidation of stale EUR/USD long positions.”

“The upward momentum has faded and the compelling ECB/Fed divergence trade is well priced and not as compelling following recent data flow. Risks in that regard feel more to the downside. So with the momentum favouring the US Dollar at the moment an upside surprise will add further impetus for the Dollar over the short-term.” 

“With another CPI print before the FOMC meeting in June, it would probably take a large 0.2ppt upside surprise or more to see a rates and FX move that is sustained and meaningful in size.”