Today, markets focus on the US inflation report. Its slowdown could weaken the dollar in the Forex market.

According to the consensus forecast, the consumer price index (CPI) month-on-month is expected to slow from 0.6% in September to 0.3% in October. The same decrease is expected for the core measure — from 0.3% to 0.2%. At the same time, year-on-year both headline and core inflation are expected to rise from 3.7% to 3.9% and from 2.6% to 2.8%, respectively.

Recall that K. Warsh, head of the US central bank, has repeatedly emphasized that the central bank will base rate decisions on domestic conditions. Given his reluctance to raise rates in a way that would harm the national economy, a continued slowdown in inflation this month could lead the Federal Reserve to refrain from raising rates at the December meeting. Currently, fed-funds futures show about an 82.2% probability of a rate increase in December. But the picture could change sharply if the CPI report declines.

What may weigh on US price growth?

First and foremost, a likely continued decline in crude oil prices. New Trump initiatives toward a diplomatic process in the Middle East, rather than a resumption of hostilities, led to a Monday collapse in oil prices, and that decline continues this morning. On that wave, one should expect further slowing of inflation growth this month, which could become a basis for pausing rate hikes in December.

What to expect in markets today?

I believe that if the consumer-inflation report meets the forecast or shows even greater slowing, we should expect a renewed decline of the dollar versus major currencies on the Forex market. This reaction will clearly stem from falling expectations of a mandatory rate increase at the Fed's December meeting. This possible reaction is based on the fact that a December hike is already largely priced into asset values.

Forecast of the day:

EUR/USD

The pair is trading higher ahead of the US inflation release. On this wave, the pair may rise to 1.1270 and then to 1.1315. A buy level can be 1.1250. Place a stop-loss at 1.1177.

USD/JPY

The pair is consolidating in a very narrow range, from which it could break lower and fall to 157.00 on the US inflation data. A sell level can be 157.85. Place a stop-loss at 158.79.