AUDUSD TECHS: Trend Needle Points South

Download MNI's August CPI preview here

• In a crucial release ahead of next week’s Fed decision, MNI’s unrounded median of analyst estimates for August’s CPI report out Friday sees 0.22% M/M for core and 0.39% for headline.
• Mixed drivers are expected for core CPI components, with travel-related items sequentially stronger than in July but weakness across a variety of other areas. Lodging is seen rising slightly after two notably weaker-than-expected months, and airfares are seen increasing strongly.
• Medical care services CPI is seen moderating with medical care goods falling outright, apparel dipping, and used cars rising at a slower pace than in July. OER is seen around 0.25% and primary rents around 0.22%, while tech-related inflationary pressure is likely more limited after July’s strength.
• Headline is expected to be boosted by an energy bounce along with firmer food price inflation. Energy is seen rising circa 2.5% M/M after (-1.5% in July, on the back of a 4+% seasonally adjusted rise in gasoline. Food is seen rising 0.2% M/M, with some risk skewed to a 0.3% print after a surprisingly soft July.
• The August inflation reports could tip the scales for next week’s FOMC decision which is currently weighted slightly in favor of a 25bp hike going into this inflation round.
• Chair Warsh downplayed recent softer inflation prints in his Jackson Hole speech, saying his “standard” is that the Fed “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” But Gov Waller is “finally seeing some signs of disinflation” and wants to “give disinflation a chance, we can wait one meeting” if CPI and PPI show continued progress.
• Very crudely, a 0.2% M/M core CPI print will come down to rounding and details; 0.3% could be enough to persuade a sufficient share of the FOMC to hike, whereas 0.1% would likely see more officials come around to Waller’s approach.
• A consensus-like 0.2% core print may therefore be unlikely to settle the debate on its own, leaving the details, making the PPI-to-PCE translation and market-based core PCE implications unusually important.
• Prior to Thursday’s PPI release, an early median of analysts sees core PCE at 0.21% M/M, moderating from 0.25% in July; market-based core PCE is seen below that, at least for now.
• Market pricing is around recent hawkish extremes: Fed funds futures see 15.5bp of hikes priced for next week, a cumulative 23bp for October and 37bp by year-end, with a cumulative 63bp by June 2027.

SOFR & Treasury options trade outlined below: two-way on net after leaning towards low delta puts earlier. Underlying futures weaker, remains sensitive to moves in crude, while Projected rate hike pricing vs. late Tuesday levels (*): Sep'26 at +15.5bp (+15.4bp), Oct'26 at +22.2bp (+22.1bp), Dec'26 36.8bp (+35.7bp), Jan'27 43bp (41.6bp).

• SOFR Options:
  • -8,000 2QU6 95.62/95.75/95.87/96.00 put condor, 5.75 ref 95.675
  • -4,500 SFRH7 95.87/96.37 1x3 call spds, 1.75 ref 95.77
  • +2,000 SFRH7 96.18/96.25 call spds w/ 96.68/96.87 call spd strip 2.125 ref 95.775
  • +3,000 SFRF7 95.43/95.75/95.93 put trees, 0.75 ref 95.78
  • +2,000 SFRU6 96.06/96.18/96.31 call flys, 5.25 ref 96.1325
  • +4,000 SFRU6 96.06/96.12 2x1 put spds, 1.5 ref 96.1375
  • +2,000 SFRH7 95.75 straddles, 48.25 ref 95.79
  • Block, 10,000 SFRM8 98.00/99.00 call spds, 3.75/splits ref 95.72
  • -1,500 SFRZ6 96.00/96.06/96.12 call trees, 3.5 vs. 95.925/0.22%
  • +5,000 SFRV6 96.06/96.18 call spds, 3.25 ref 95.925
  • +5,000 SFRV6 96.187/96.25/96.31/96.37 call condors, 0.5 ref 95.925
  • -1,000 SFRU6 96.125 straddles, 6.75 red 96.13
  • over +15,000 SFRZ6 95.75 puts, 7.25 ref 95.92
  • 8,600 SFRZ6 95.68/95.81/96.00/96.12 put condors ref 95.925 to -.92
  • +5,000 SFRU6 96.18/96.25 call spds, 1.0 ref 96.13 to -.1325
  • 2,000 SFRV6 96.12/96.18 call spds x2 vs. SFRV6 95.75/95.87 3x2 put spds
  • +2,500 SFRU6 96.06/96.18/96.31 call flys, 5.5 ref 96.1375
• Treasury Options:
  • +6,000 TYX6 106 puts, 20 ref 107-00.5, total over 16.2k
  • +10,000 TYV6 106.5 puts, 15 ref 107-02 to -01.5, total volume over 29.5k
  • 16,000 TYV6 107 puts, 19
  • Block, +22,000 TYV6 107 calls, 38 vs. 107-09/0.68%
  • 1,500 TYZ6 106.25/107 put spds, 11 ref 107-08.5
  • 2,000 wk2 US 109.5 calls, 8 ref 108-16 (exp 9/11)
  • over +20,000 Mon wkly FV 105.25 puts, 8.5 ref 105-12 (exp 9/14)
  • +6,000 wk2 TY 107.25/107.5 put spds, 8-9 ref 107-09.5 (exp 9/11)
  • +5,600 TYZ6 107 puts, 51 ref 107-08.5
  • +3,000 wk3 TU 103.12 calls, 0.5 ref 102-16.38 (exp 9/18)
  • 3,750 TUZ6 102.75/103 call spds vs. TUZ6 102 put, 2 net ref 102-16.5
  • -1,750 TYX6 107.5 straddles, 124 ref 107-11/0.08%
  • +2,200 TYX6 109/110 call spds, 6
  • -1,000 TYV6 106.5/108.25 strangles, 17

• Crude oil has rallied further on Wednesday, with WTI above $95/bbl and Brent above $100/bbl for the first time since July after renewed vessel attacks across the Middle East.
• WTI Oct 26 is currently up by 3.7% at $96.5/bbl.
• The US confirmed it destroyed five Iranian crude oil carriers, after Iran's IRGC targeted an American Navy warship with ballistic missiles. US Secretary of State Marco Rubio warned that the US will continue striking Iranian tankers if threats to warships persist.
• Meanwhile, the EIA has kept its global oil demand outlook largely steady, with the 2026 estimate down just 0.1m b/d to 102.6m b/d, and the 2027 forecast unchanged at 105.0m b/d.
• A bull cycle in WTI futures is intact, with sights on a bull channel resistance at $96.79, the channel drawn from the Jul 2 low, which has been tested today. Clearance of this level would open $98.08, a Fibonacci projection and psychological round number resistance at $100.00.
• Elsewhere, precious metals have also rallied today, with spot gold up by 1.0% at $4,399/oz and silver rising by 2.5% to $67.4/oz.
• For gold, moving average studies are in a bull mode position, highlighting an uptrend, with the bull trigger at $4,696.8, the Aug 25 high. On the downside, a clear break of 50-day EMA support at $4,350.0, would open 4,231.1, a Fibonacci retracement.