Oil and gas prices are up strongly since December.  While it has been extremely beneficial to algo-driven portfolios, the inflation chickens are coming home to roost.  MoM CPI rose to 0.4%, driving the YoY rate back up to 1.9%.

While a single month pop isn’t all that alarming, there’s a very good chance that these data will temper expectations of Fed dovishness.

Meanwhile, across the pond, Mario Draghi just issued another “whatever it takes” declaration.  Could this finally be the start of the currency realignment that has been so long in the making?

continued for members…

Futures initially popped on the news, fell back to test the SMA5 200, and are back to the top of the recent falling channel — which, for ES, never quite got to the .886 for a backtest. SPX, on the other hand, did just fine.Draghi’s comments weren’t terribly helpful for the EURUSD, which had been in the midst of a 6-session winning streak.

While the inflation data failed to lift USDJPY out of its falling channel……nor break DXY out of its stupor. It will be interesting to see what comes out of the EIA inventory report this morning.  API showed a big build for crude and a big draw for gas.  But, we often see differences between the two sources.  And, EIA’s is the data which feeds the inflation models. The most interesting response to the CPI data, IMO, was in the bond market.  With a strong bounce in inflation, yields are actually falling.If oil prices are driving CPI to unacceptable levels again (where the FOMC might tighten), the theory goes that they’ll need to level off.  If they level off, then the algo action will need to be driven by USDJPY.  But, a cheaper yen entails its own set of problems, as it drives up Japanese inflation — already under pressure from rising oil prices.

The pressure will again be on VIX to support stocks.

I need to run out for a quick meeting.  I’ll be back by around noon to continue this thread.

UPDATE: 3:45 PM

Going into the close…  a nice bounce, but no new highs.  Again, it seems like the goal is simply to maintain these levels.  Perhaps a defensive move given the potential Brexit fireworks?

USDJPY has broken below its latest TL… …still looking for the red .500 at 108.38. CL made no new highs……but RB had a monster day. VIX shed over 6% in order to effect a .25% rise in stocks. More of the same…