Headlines:

• Dollar stays in a tough spot so far to start the week
• Will UK inflation data give sterling another boost this week?
• ECB’s Knot: Rate hikes beyond July possible but not certain
• Deutsche Bank cuts China full year GDP growth forecast to 5.3% from 6.0% previously
• China announces some measures to bolster use of consumer goods and services

Markets:

• JPY leads, NZD lags on the day
• European equities little changed; S&P 500 futures flat
• US 10-year yields down 3.7 bps to 3.760%
• Gold up 0.5% to $1,965.22
• WTI crude up 0.4% to $74.46
• Bitcoin up 0.4% to $30,040

It was a quiet session with there being no major economic releases in European trading today.

Markets were generally slower as we gear towards the US retail sales data to come later in the day. Major currencies stuck in narrow ranges with the dollar keeping mildly lower but little changed overall.

EUR/USD moved up slightly to a high of 1.1275 earlier but is now just up 0.1% at 1.1245 on the day. Meanwhile, GBP/USD is keeping just below the 1.3100 mark while USD/CHF continues to test waters below 0.8600 today.

USD/JPY is a decent mover but is only seen down 0.3% to 138.30 with the earlier low touching 138.10 during the session. The aussie is little changed against the dollar with AUD/USD at 0.6810 while NZD/USD is marked down by 0.5% to 0.6290.

In other markets, equities are little changed overall as investors stuck with a more tepid mood ahead of the big data today. Treasury yields are slightly lower, keeping the retreat from last week for the most part.

It’s all about the US retail sales data next and considering the dollar’s technical vulnerabilities, it may still end up being a tough one for the greenback to get off the floor this week.

This article was written by Justin Low at www.forexlive.com.

The last week, the miss in
the US CPI report has led to a big US Dollar selling
across the board as the market expected the Fed to be finished with rate hikes
after the July meeting. The resilience in the labour market and the rising consumer sentiment have also led to expectations that
the US can really achieve a soft-landing, and this led to a positive risk
sentiment in the markets. The RBNZ, on the other hand, kept its official cash
rate unchanged while stating that it will remain at the restrictive level for
the foreseeable future to ensure that inflation comes down back to target.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that after rallying
into the key 0.6389 resistance, the
price was overstretched from the blue 8 moving average. In such
instances, we can generally see some consolidation or a pullback into the
moving average before the next move. In fact, the price has now pulled back
into the moving average and the previous swing level at 0.6305 where we are
likely to see a bounce.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that at the 0.63
round level we have also the 38.2% Fibonacci retracement level of
the entire upward move from the 0.6133 level. The buyers should step in here
with a defined risk below the level and target the break above the 0.6389. The
sellers, on the other hand, will want to see the price to break below the 0.63
handle to increase the selling pressure and target the 0.60 handle.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
we had recently a rejection from the 0.6344 level. This will be an important
minor resistance. A break above it would confirm the bounce from the 0.63
handle and lead to more buying pressure. The last line of defence for the
buyers will be the broken trendline as a move below it would see the sellers in
control.

Upcoming Events

Today the market will
be particularly focused on the US Retail Sales data. There’s a high chance that
the USD will be pressured on multiple scenarios though. In fact, good data
should reinforce the soft-landing narrative, while a little miss may indicate a
healthy softening that is going to help easing prices. Only a big miss may give
the USD a tailwind as the market sentiment would switch into risk off. Another
important report will be the US Jobless Claims on Thursday as the market keeps
an eye on the labour market.

This article was written by FL Contributors at www.forexlive.com.

The UK CPI data for June is out tomorrow and headline annual inflation is estimated to drop from 8.7% in May to 8.2% in the last month. However, core annual inflation is estimated to hold steady at 7.1%. The latter is still the main focus as food price inflation especially continues to run hot in the UK. And just keep in mind that in each of the last four readings, core annual inflation has beaten estimates and expectations:

Will it do so again this week? If so, how will that impact the pound? Let’s try to wrap our heads around this matter.

As things stand, markets are already sensing that the BOE needs to step up their game and tighten policy further to prevent inflation from getting out of control. The odds of a 50 bps rate hike for August now stands at roughly 66% with a terminal rate of roughly 6.06% priced in as of today.

On the latter, that is a modest repricing from the near 6.50% earlier this month. However, one can certainly argue that there was an overshoot in terms of hawkish expectations at the time. It is only July but markets were seeing the BOE peak rate to come in during March next year – which implies a considerable amount of rate hikes in the next five to six meetings.

I mean let’s be real. This is a time when markets can’t even look to two or three meetings ahead. So, to try and make bets over what is to come in the next eight to nine months is a bit of a stretch. As such, those convictions may not be too strong as they will have to be reassessed according to the data and the upcoming central bank decisions.

It’s easy to speak in hindsight but the best thing we can do as traders is to take lessons from the past. And in this instance, we don’t have to look too far away to see how markets have repriced Fed odds after the banking crisis in March to April have settled down.

Going back to the BOE and the pound, another hot set of inflation numbers this week is going to keep the fire alive on more hawkish expectations. But after having seen what I would say is „peak hawkishness“ in pricing in a 6.50% bank rate, it’s hard to imagine any further significant hawkish turns for the pound from hereon.

In other words, the pound may still get a lift on a beat in the inflation report but perhaps not as strong as before.

Instead, I would think towards the opposite. At some point, these hotter-than-expected inflation numbers in the UK are eventually going to weigh further on the economy amid the cost-of-living crisis. And when you add that to tighter financial conditions and higher interest rates choking out credit demand, there is a real risk of stagflation in the economy.

And I would argue that we are getting closer to that ‚breaking point‘ where the pound may look to the high inflation numbers and say: „Hey, this is getting out of hand and the economy is shot. High interest rates are not addressing the problem and these tighter financial conditions may end up breaking something or at least induce a hard landing.“

If that is the case, I would imagine that higher inflation readings will start to reflect badly on the pound. We’re not quite there yet I would say but if there are cracks starting to show up in the labour market especially, there might be scope for a sharp correction in sterling down the road.

This article was written by Justin Low at www.forexlive.com.

Last week the US CPI report missed across the board and led to a
strong rally in GBPUSD as the market priced out the more hawkish path for the
Fed and now expects the July hike to be the last one. The resilient labour
market and the rising consumer sentiment has also increased the chances of
getting a soft landing which contributed to the positive risk sentiment.

Conversely, the UK employment report recently missed expectations
on the jobs side but showed another upside surprise on the wages side. This should
keep the BoE on track to hike interest rates with the CPI report this week being
the decision maker between a 25 bps increase or another 50 bps hike.

GBPUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that since bouncing
on the red 21 moving average, GBPUSD
has been rallying with almost no pullbacks. After reaching the 1.3142 high, the
pair finally started to pull back a bit as the price got too much overstretched
as depicted by the distance from the blue 8 moving average. We can generally
see some consolidation or a pullback into the moving average before another
major move.

GBPUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the price
pulled back into the red 21 moving average where we found already the buyers
stepping in with a defined risk below the moving average and possibly the 1.35
handle as target. The sellers will need the price to fall below the 21 moving
average to get some conviction and target a deeper pullback into the 1.2847 support.

GBPUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has broke out of a falling channel today and the moving averages have
crossed to the upside. This is a signal that the bullish momentum is picking up
and we may see already a new high today. For confirmation, the buyers may wait
for the price to take out the previous swing high at 1.3108 before piling in
more aggressively. The sellers, on the other hand, will need to see the price
to fail this breakout and fall below the black trendline to
pile in and extend the pullback into the 1.2847 level.

Upcoming Events

Today the main event is
the US Retail Sales report. The current positive risk sentiment should give the
buyers an opportunity to buy the dip in case the data beats expectations and
increase the buying pressure in case the data misses. We should see a bigger
selloff only if the data comes much lower than expected, leading to some
general risk off sentiment. In the following days we will see the UK CPI report
tomorrow and the US Jobless Claims on Thursday.

This article was written by FL Contributors at www.forexlive.com.

The euro’s early gains have been pared with EUR/USD now flat at 1.1235 and the dollar is little changed overall once again. The Japanese yen is still slightly higher, with USD/JPY down 0.3% to 138.28 and that owes a to the slightly lower Treasury yields on the day.

This comes as equities continue to also keep in a more tepid mood. US futures are little changed and European indices are also more or less flat on the day at the moment. As much as the US retail sales data later may not be as important as the inflation numbers last week, it is still another key indicator of the economy and it seems like traders are waiting on that.

Besides the yen, the kiwi is the laggard with NZD/USD down 0.5% to just below 0.6300 again as we do see a push higher in AUD/NZD to 1.0820 on the day. The latter is running close to its 200-day moving average of 1.0823, so that could be a reason for the flows we’re seeing in the kiwi on the session.

Elsewhere, gold is up 0.4% to $1,962 but keeping within the ranges of the last few sessions. And WTI crude is little changed at $74.25 after having seen the Saudi spike higher yesterday fade rather quickly, with price action trapped between its 100 and 200-day moving averages at $73.50 and $77.04 respectively.

This article was written by Justin Low at www.forexlive.com.