Demand has exploded for a cheap options bet which stands to benefit should the market-implied odds of a Federal Reserve rate hike in December tumble.
As Bloomberg reports, the eurodollar call option involved expires Friday, so the biggest chance the wager has to profit lies with a weaker-than-forecast print on the September consumer price index, set for release at 8:30 a.m. New York time.
The options position emerged Wednesday, and was added to dramatically on Thursday, CME open interest data show.
Expectations are for a 0.6% rise in CPI MoM (Core CPI +0.2% exp) and the whisper number is for a 0.5% rise.
The current odds for a Dec rate hike are 80.2%...
The minutes of the Fed’s September meeting showed some officials are concerned that low inflation is more than temporary.
Rajan Dhall MSTA from fxdaily.co.uk provides a quick preview of what to expect:
Looking ahead to the US data releases this afternoon, there are some common themes to pick on, with the CPI rate set to rise on the boost in gasoline prices. Shortages and disruption in agricultural products will also lead to upward pressure in price, but will be 'factored out' to a certain degree.
For retail sales, the pick up in auto sales post hurricane season is expected show up strongly in these figures, giving GDP Q3 some much needed support given the detrimental weather impact on activity earlier in the quarter.
All this points to a good afternoon for the USD on the face of it, but therein lies the drag factor, so any miss on the data points could have a more volatile effect to the downside. That said, with so many of the Fed members focused heavily on inflation, a move through 2.0% in the headline rate will be an interesting dynamic given the rhetoric from the likes of Kashkari and Bullard, and to a lesser degree Kaplan. A December rate hike is largely priced in at present, and if normalisation is as strongly intended as Fed chair Yellen makes out, then this is the time to underline it - but a softer USD helps their cause and the market could be playing right into their hands - the conspiracy mongers and cynics will point to downbeat comments of late pushing for this in any case.