USD Dominance vs. EUR/GBP Volatility: Key Data to Watch

Why is the dollar holding strong into today's CPI, and where is the crowded positioning in FX?

Short answer: rate differentials plus a fresh geopolitical bid. The US struck Iran after Tuesday's market close, and May CPI prints today at 8:30 AM ET. Every major pair is positioned around those two events.

The rate gap

Fed at 3.50-3.75%, with CME FedWatch pricing a 99.4% hold at the June 16-17 meeting and a 72% chance of at least one hike this year. ECB at 2.00%. BOJ at 0.75%, the highest in roughly 30 years but still 275bp below the Fed. BOE in the 4.25-4.50% range after measured cuts. Carry favours the dollar against nearly everything.

Where the COT positioning sits

EURUSD near 1.1538 with non-commercials 51.9% long. A mild long bias into a binary event.

GBPUSD carries the heaviest speculative short in G10 at -51,483 net contracts. Shorts this crowded are fuel for a squeeze if sterling catches any bid.

USDJPY closed at 160.15 on June 9 with net yen shorts at -136,611 contracts. BOJ Governor Ueda said this week the bank should carefully weigh further hikes, and PM Takaichi told parliament the government wants to support the yen. That is the polite phase of verbal intervention. The unwind trigger for crowded shorts is a hawkish BOJ surprise, not more easing.

AUD holds a 62.6% long bias on the RBA's hawkish turn to 3.85%. CAD nets -93,256 short.

Why today's CPI is asymmetric

April CPI was 0.6% MoM and 3.8% YoY, mostly energy. May consensus is roughly 0.3% MoM headline, core near 2.8-2.9% YoY. A soft print gives Warsh room at his first dot plot (June 17, 2:00 PM ET) and takes air out of the dollar. A hot print, with oil supply back in question after the Iran strike, hardens the hike probability and extends the dollar run.

Worth noting: Tuesday's NFIB survey showed the share of small-business owners planning price increases at the highest in nearly four years. The 10-year hit a 16-month high of 4.69% and the 30-year is above 5%. That is a bear steepener, not a flattening, and it historically shows up when markets price persistent inflation.

PPI follows Friday June 12 at 8:30 AM ET. June OPEX is Thursday June 18, pulled forward from Juneteenth. The dot plot is the destination. Everything before it is positioning.