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However, after last month’s CPI report surprised with the highest month on month rise in core prices since the 1980s, the bar for a strong reaction this month has been set much higher and as such a more tame reaction is likely this time around.

Supporting the idea of a less volatile reaction, there appears to be growing acceptance of the Feds view that the current rise in inflation is transitory and a recognition that the Fed is focused on the labour market ahead of inflation.

As such, a strong inflation number on Thursday night is unlikely to bring forward the Feds timetable to commence tapering. Although it may prompt the Fed to start its evitable discussion on tapering at the June FOMC, along with an attempt to separate timelines for tapering and rate hikes.

For the record the market is expecting to see a further acceleration to 4.6% y/y in headline inflation with core inflation rising to 3.4% y/y as the deflationary effects from a year ago drop out, and the impact of higher commodity prices, supply bottlenecks and pent up demand following the reopening continue to impact.

In line with this, while the US dollar might find some temporary support following the release of the number the more attractive opportunity may be found in shorting USD/JPY if it breaks/closes below trendline support coming in near 109.00, following the release of the CPI data.

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This would provide an initial indication a decline towards the April low at 107.47 is underway with some risks of a deeper pullback towards wave equality and the 200day moving average coming in between 106.90 and 106.30ish. A move that would bring USDJPY back in line with US 10 year yields as viewed on the second chart below.

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