US Producer Prices A Little Softer Than Expected - Slight Fade In USD At Best
This afternoon's US producer prices set the market up for the headline inflation numbers out tomorrow. Tomorrow's release is expected to see headline CPI rise a 0.1% to 3.0% on an annualised basis, though PPI today has come in a little shy of expectations at 3.3% vs 3.4% after a flat read over Jul. All in all, this is not a significant development which can impact on Fed policy going forward. Based on the fact that the USD is rising on policy divergence and yield advantage, the reaction is expected to be muted at best.
Even so, the USD is a touch softer, though marginally so. Given the tight limits we have seen trading over the last 2-3 days, we watch 95.0 on the DXY to see whether this will remain the base into tomorrow's numbers and for now this looks safe. Longer term, stronger levels are seen closer to 94.40-50 as we have previously highlighted and while this remain intact, the prospect on another test on the 95.50 level is still on the cards.
EUR/USD is hemmed into a tight range confined by 1.1570-1.1630 for now, with the pair gravitating in the middle of this looking for direction. USD/JPY continues to find buyers under 111.00, with what looked to be a prospective test on the mid 110.00's fizzling out pretty quickly.
US Initial claims came in a little better than expected at 213K, though the previous week was revised up to touch 219K.
Very little to get excited over as a result, so traders may well be keeping their powder dry for tomorrow's data bonanza when we get UK GDP (Q2) in the morning, US inflation in the afternoon accompanied by Canadian payrolls.