The October CPI report arrives at a critical juncture for markets. Investors are trying to anticipate whether the Federal Reserve will follow through with one more interest rate increase.
The upshot of this is that the risks for investors heading into Tuesday's report are likely skewed to the upside. Even a slightly stronger-than-expected number likely wouldn't be enough to derail the market's November rebound rally and the strengthening of EURUSD.
While weak data could reinforce expectations that the Fed is done hiking rates and trigger a strong rally in EURUSD.
U.S. inflation has eased substantially since peaking above 9% on a year-over-year basis last summer, the highest rate in four decades. The data released last month showed that consumer prices rose 0.4% in September, down from 0.6% from the prior month, but still slightly above expectations.
However, the more closely watched "core" figures reflected only a 0.3% increase, which was in-line with expectations.
Retail gasoline and heating oil prices declined a little over 10% over the month. Energy inflation is the most important component of inflationary pressures overall.
Economists polled by FactSet expect consumer prices rose 0.1% in October, following a 0.4% bump in September. They expect a 0.3% increase for core prices, which excludes volatility in food and energy. Powell has said that he's keeping a close eye on core inflation, as well as so-called "supercore" inflation, which measures the cost of services inflation excluding housing.
To be sure, the CPI report isn't the only piece of potentially market-moving news due during the coming week. Investors will also be expecting a number of other important reports, including potentially market-moving readings on housing-market and manufacturing activity.
And the market will also be influenced by the Producer Price Index, another closely watched barometer of inflation, which is due out Thursday.
The final recommendation is to buy EURUSD if the core CPI (MoM) is below 0.2%.
The profit or loss should be fixed an hour after the inflation data is released.