WTI oil prices hit fresh YTD highs on Wednesday, despite a higher-than-expected inventory draw. The technicals and fundamentals are both pointing to higher prices for oil, with momentum and retail positioning strong, and supply reduced with increased demand. 

The average 1-day returns for WTI with US CPI prints between March 2022 and last month has been positive regardless of whether CPI missed or beat expectations. However, there are always risks of two-way volatility with flows in the dollar. 

Equities Chop Around Ahead of US CPI 

Equities have continued to chop around ahead of the US July inflation print. The catalysts for this week’s equity price action remain thin, with all eyes on the inflation data. 

US Treasury yields have remained glued to their recent tight range, as markets wait for the US CPI data before making a move. Given traditional summer thin liquidity, taking a patient stance makes sense. 

AUD Leads Major Currencies as Risk Sentiment Positive 

The AUD is leading the major currencies to the upside, with risk sentiment positive. The USD is the weakest of the majors, given the positive risk flows and could also be trading lower due to profit taking ahead of today’s CPI. 

The Main Event of the Week: US July Inflation Data 

The major event of the week is finally upon us, with the release of the July inflation data for the US.

While this data point can create a sizable short-term volatility, it is important to note that we have one more NFP and CPI print left before September’s FOMC policy decision.

Any reactions to the inflation data won’t necessarily change expectations for the September meeting too drastically. However, since we are right in the middle of summer renowned for low liquidity, any big surprises can pack a punch in terms of market reactions.

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