Janet Yellen was too hawkish in her Congressional testimony. Recent retail sales and CPI data painted an ugly picture. Consumer inflation disappointed for the 4th month in a row – in June it stayed unchanged MoM vs. expectations of a tiny 0.1% rise. Moreover, core CPI slumped to 1.7% yoy, hitting the lowest level since the start of 2015.
Meanwhile, June retail sales significantly missed expectations showing -0.2% vs. +0.2% forecast. And the core retail sales excluding auto/gas reflected the lowest annual increase since February 2014.
What does it mean? That market expectations on the Fed’s rate hike were exaggerated and it’s time to correct by selling USD. The most impressive moves may come from USD/JPY, which has lost almost 100 pips, hitting 4-day low at 112.26. If the pair manages to break below 112.30, the next target is at 111.70.