The Real Fundamental Analysis

Keep an eye on the US CPI today.

Will set the tone for the Dollar going forward.

The general consensus is for a 2.9% print on headline, and 3.8% print on core.

Now here’s what more detailed models are showing:

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Pay attention to Goldman Sachs in particular, their models have been fairly accurate with inflation for a good while.

So notice how they are expecting a 3.0% and 3.9% print.

Yes, ABOVE consensus.

Keep that in mind.

In my view, the base case for this CPI is to surprise to the upside.

And that would set the context for EURUSD to get below 1.07 and towards 1.06 over the next week or so.

When you have the right context.

Inflation surprised expectations higher.

EURUSD will go for 1.06 over the next week or so.

Ok guys, I managed to put together a video going over the core of this fundamental approach that we use in this thread.

This:

Basic one, but useful to help you understand better what we do in this thread.

Let me know if you have questions.

Meanwhile…

Ongoing.

But, elsewhere the EURGBP shorts are going back to breakeven.

The CPI from the UK this morning printed on a soft note and that’s turning the GBP around.

Keep in mind…

Those shorts have the stop loss at breakeven, so if hit the trade is squared flat.

For some technical context too, here’s the chart:

A lot of chop, yes.

That move up this morning is the soft CPI print from the UK.

So again, remember…

A bit higher and the breakeven hits.

Alright guys.

Fresh trade setting up with EURUSD shorts.

Notice the latest inflation numbers from the US.

So both the CPI and PPI.

What do those tell you?

That the FED needs to stay higher for longer.

Yes, and that’s bullish USD.

So let’s put a plan on the chart:

Fairly straightforward.

Fairly good risk reward.

Target 1.06.

Ok guys.

Let me show you something…

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The above is a snippet of a note from Goldman Sachs where they lay out five possible scenarios for the Dollar ahead.

And yes.

They are all bullish USD.

Now, before we get into the conversation remember…

These are SCENARIOS.

So potential macro environments that could take place.

These are just meant to give you some insight and perspective, so you know what’s happening when one of these scenarios starts to unfold.

Ok?

Perfect.

First…

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If the global economy takes a downturn, and that requires central banks to cut rates aggressively that’s… bullish USD.

Why?

Safe havens.

Interest rates are secondary when global growth is taking a hit.

Risk sentiment rules.

And safe havens such as CHF, JPY, and USD in that case would dominate.

Second…

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If something goes wrong geopolitically across the world, all paths there would lead to demand for?

Safe havens.

Same reason as the growth scenario…

Safety. When things get risky, people run to CHF, JPY, and USD.

And GOLD too, of course.

Third…

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Yes that’s right.

It’s an election year.

And Trump is leading the polls.

As the election gets closer the market will start to price in his victory if he keeps leading, and that’s… you guessed it, bullish for the Dollar.

Why?

In one word: tariffs.

In two words: China tariffs.

In three words: China Europe tariffs.

Yes. First thing Trump will do if he gets in office is hike tariffs on China’s exports, and sprinkle a few against Europe too.

The Dollar in that scenario too is the weapon of choice.

Forth…

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Wait…

What the ECB has to do with the Dollar?

Keep in mind:

Lower rates in Europe mean investors will look for higher yields elsewhere, like the US. And lower rates in Europe mean a weaker EUR, which makes up more than half of the DXY. So, a weaker Euro means a stronger Dollar.

Fact.

Fifth…

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Simply the US economy keeps printing strong, and inflation picks up a little or stalls ABOVE the FED’s target.

That’s… bullish for the Dollar.

And by the way, that’s the ONGOING theme right now, and the most likely to keep going short term.

Just look at the CPI and PPI data this week.

So with all that said…

The path of least resistance for the Dollar is?

Higher.

Yes.

Medium to long term type of view.

Now guys…

Let me know if you find these types of more indepth macro posts useful.

Because your engagement lets me know what you like so it’s valuable to know how to keep improving the thread with more proper educational insights along the way.

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Stopped on the EURUSD shorts.

Sometimes the context is right, the technicals are right, the setup is right, all looks right…

But the market just ends up doing its thing.

Yes, even the best looking setups can be proven wrong sometimes.

That’s why risk management and risk reward are ALWAYS key.

Side note…

This is still valid medium to long term.

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Alright guys, bit of context for the week.

Because there’s a key fundamental number to watch carefully this week.

That’s the PCE from the US on Thursday.

You know…

Let’s see what most models are pointing tho:

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Again, pay close attention to Goldmans on the list there, because they have been the most accurate with inflation.

You can see they are on the high side of expectations.

The general consensus is for 2.8% on core, while Goldmans instead expects 2.9%.

Not a big upside surprise, but still.

For context, keep in mind…

The PCE from the US is likely to print just a bit above expectations on Thursday.

What does that mean?

Means that it could trigger some Dollar strength.

The point is that with the ongoing developments with inflation, it is starting to look evident that the FED will have to cut rates less than others.

Basically, the FED is likely to cut rates 4 times, around 100bps in total. The ECB is likely to cut 6 times, around 150bps in total, with then the BoE there in the middle.

Nothing actionable short term.

But, keeps the long term context in favor of the Dollar.

Will update after the PCE if there’s any interesting trade to take action on.