Markets Rally Following Robust CPI Report

Posted Wednesday, August 12, 2020 by
Shain Vernier • 1 min read

U.S. stocks are running to the bull following this morning’s stronger-than-expected CPI report. At the halfway point of the U.S. session, the DJIA DOW (+265), S&P 500 SPX (+48), and NASDAQ (+250) are all deep into the green. For the time being, bidders are dominating the stock market, with gainers outpacing decliners.

Yesterday’s PPI release suggested that inflation was firmly on the uptick. Today’s CPI figures backed up this assertion:

Event                                      Actual            Projected        Previous

CPI (MoM, July)                       0.6%                 0.3%                  0.6%

Core CPI (MoM, July)              0.6%                 0.2%                  0.2%

At this point, it appears the trillions of dollars in FED QE are finally stimulating inflation. Core CPI tripled projections, suggesting that prices are moving higher exclusive of food and energy costs. Don’t look now, but a more hawkish tone may come to pass at September’s FED meeting.

CPI Up, USD Rallies Vs The Yen

Typically, a robust CPI reading translates into a strengthened USD. Conventional wisdom tells us that as inflation rises, rate hikes from the FED are imminent. However, 2020 is certainly special in that COVID-19 will largely dictate FED policy for the foreseeable future.

USD/JPY, Daily Chart

The past four sessions have been good for USD/JPY bulls. Rates are closing in on 107.00 amid decisively bullish participation. As we roll toward late-week trade, there is one resistance level on my radar:

  • Resistance(1): Swing High, 107.53

Bottom Line: Until elected, I’ll have sell orders in the queue from 107.44. With an initial stop loss at 107.77, this trade produces 33 pips on a standard 1:1 risk vs reward ratio.

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