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US CPI on 10 November 2022: 7.7% against 7.9% expected, and a dollar that fell about 2% in a day

A case study in what a 0.2 point surprise can do. On Thursday 10 November 2022 at 08:30 New York, 13:30 London, the US published October CPI. Headline inflation came in at 7.7% year on year against 7.9% expected. Core was 6.3% against 6.5%. The monthly headline rose 0.4% against 0.6% forecast.

Eight days earlier the Fed had raised rates by 75 basis points for the fourth meeting in a row, and the open question was how much slower the hikes would get. A softer print moved pricing toward smaller increases, and the Fed did go with 50 basis points on 14 December. The dollar index fell about 2% over the day, a move that normally takes weeks. USDJPY dropped by roughly 5 yen from around 147, so about 500 pips, and EURUSD went from under parity to more than two cents above it.

Two lessons come out of the arithmetic. A pip on one lot of USDJPY is about 1,000 yen, roughly $7 at those levels, so 500 pips on one lot is around $3,500. A long held into the number with an 8 pip stop didn't lose $56. It lost whatever the fill gave it, and in the first seconds fills were many pips beyond the stop.

The other lesson is how small the surprise was. The headline missed by 0.2 points out of 7.9, about 2.5% of the figure, and that was enough to reprice the Fed's path. Big moves come from small differences when the market has built a view around a consensus.

A clear case study. One more point is that the dollar fell against almost everything that day, which showed it was a broad repricing of Fed expectations. USDJPY fell more than EURUSD rose, partly because yields fell sharply and the yen is sensitive to US rates. For traders in Asia, the next Tokyo session saw follow through as Japanese investors reacted. Looking at the next session after a big release is often useful, as the first reaction is not always the full story.

The market came into that release with a hawkish lean, which helps explain the size of the reaction. At the 2 November press conference Powell had said the ultimate level of rates would probably be higher than expected in September. USDJPY had touched about 152 on 21 October, the day Japan stepped into the market to buy yen. So positioning was long dollars, short yen, with a lot of people leaning on the same view. When the number missed, the exits were crowded. The same size of miss in a quiet, balanced market might have produced a fraction of the move, so the surprise has to be read together with how the market was positioned.

I was trading that morning and it is still the release I use to remind myself why I don't hold into data. I had a small EURUSD long from earlier in the session, which worked out fine, but a friend on the same desk group was short with what he thought was a 10 pip stop on USDJPY. His fill came in more than 40 pips away from it, and the spread on his platform briefly showed over 15 pips.

The other thing I remember is how long the move kept going. I assumed the first spike would retrace, as many CPI moves do, and waited for a pullback to sell USDJPY. The pullbacks were tiny, maybe 20 to 30 pips, and each one was bought again. By the London close the pair had fallen further than any single move I had traded before.

The positioning point in the replies is the lesson I took. Before big releases I now check how stretched the pair already is relative to its recent range, because the crowded side is the one that gets squeezed when the number misses.

Put numbers on the stop. One lot of USDJPY at those levels is about $7 a pip. A stop 8 pips away risks about $56. If the stop fills 40 pips away, the loss is about $280, which is 5R. If it fills 100 pips away, it's about $700, 12.5R. When the market reprices in seconds there are no quotes between the old and new levels, and a stop becomes a market order at the first available price. That is why being flat before a number like this isn't timidity. The stop distance protects you in normal conditions and does very little in the one second where the loss would otherwise happen.

After the print, the question is when to trade again. One way to define it is by the spread: wait until it is back within double its normal level for three minutes in a row, rather than waiting a fixed time. The range of the first M5 candle after the release also gives you context. If it was 80 pips, a 6 pip stop is meaningless for the next few candles, and a sensible stop is sized against the new volatility, not the old. Many people try to catch the first pullback after the spike, so that area gets crowded, and the next move can come from stops being cleared on both sides of it.

None of this needs to be a surprise. The US Bureau of Labor Statistics publishes its release calendar for the whole year. CPI normally comes out at 08:30 Eastern somewhere between the 10th and the 15th of the month, and payrolls on the first Friday. Put those dates in a calendar along with the consensus and the previous reading, and add a pre release routine: cancel pending orders, close or hedge anything open, note the spread, and write the consensus on a sticky note. Doing that a hundred times costs nothing, and the one time it matters, it's already automatic.