Headlines:

• UK June payrolls change -9k vs 23k prior
• Cable resumes upside push after jobs data
• ECB’s Villeroy: We are close to the peak of interest rates
• Germany July ZEW survey current conditions -59.5 vs -60.0 expected
• Germany June final CPI +6.4% vs +6.4% y/y prelim
• US June NFIB small business optimism index 91.0 vs 89.4 prior
• China June M2 money supply +11.3% vs +11.2% y/y expected

Markets:

• JPY leads, NZD lags on the day
• European equities higher; S&P 500 futures up 0.2%
• US 10-year yields down 4 bps to 3.966%
• Gold up 0.6% to $1,936.05
• WTI crude up 0.7% to $73.50
• Bitcoin down 1.2% to $30,409

It was a bit of a mixed session today in European trading, with the dollar moving all over the place against a host of different major currencies. The greenback started weaker initially but now is higher against the euro, aussie and kiwi while staying lower against the yen, pound and franc.

The pound itself was boosted a little by the UK labour market report, which once again was underscored by hot wages data. That said, with markets already pricing in a terminal rate close to 6.50%, this just reaffirms that mostly. GBP/USD moved up from 1.2870 to 1.2900 on the data before extending gains to 1.2935. The pair is now at 1.2900 levels as the dollar recoups some losses from earlier.

USD/JPY was the other notable mover as it fell sharply through 141.00 from Asia to hit a low of 140.17 in Europe. The pair remains down 90 pips at around 140.30 levels, with lower Treasury yields also weighing. The bond market stays more bid so far this week and 10-year Treasury yields have fallen back down below 4% today.

Going back to the dollar, it was initially lower against the euro with EUR/USD up at around 1.1000-10 levels but is now trading to the lows for the day at 1.0985. AUD/USD also saw a similar run to a high of 0.6695 before retreating now to 0.6660 levels on the day.

Looking elsewhere, equities are keeping steadier as investors are looking for further breathing room ahead of the US CPI data tomorrow. Gold is another decent beneficiary today, with lower yields also helping out as buyers are now contesting with some near-term resistance around $1,935.

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

In March, we started to get a rehash of the saying ‚the Fed will keep hiking until it breaks something‘. And when the banking crisis came along, there were many that thought „yup, that is it“. During that time, inflation was still high and markets were in for a spicy time as the Fed was perhaps forced to rescind its credibility on fighting inflation or stick with its guns and hope that the economy can take it.

They definitely played it right in the end and are they perhaps getting their just rewards? As we head towards the main event tomorrow, US CPI is estimated to fall further in June to 3.1% from 4.0% in May. Does that mean we’re reaching a point where the Fed can start to look towards pressing the pause button? Let’s discuss.

Despite headline annual inflation falling back, core annual inflation is estimated to keep at around 5.0% in June. While much less worrying than last year, there is still some ways to go before reaching the pivotal 2% mark that the Fed is targeting. And that’s not just in the US, it is very much the same case in most developed economies.

So, where does that bring us?

For one, we look to be on the path towards low(er) inflation again but it’s not a certainty either. Most policymakers are just hoping that we can get back to the 2% level by 2025. That’s still nearly two years away.

Until then, the narrative is that interest rates will have to be kept in ‚restrictive territory‘ for a prolonged period of time. What does that mean?

It just means tighter credit conditions and generally more pressure on certain parts of the economy, like the housing market.

And if inflation fails to come down significantly, we might be staring at the possibility of stagflation risks – something which the UK is dealing with right now.

The big question for markets then becomes what will come first? Will low(er) inflation come about and major central banks manage to thread the needle and achieve a soft landing? Or will higher rates suffocate the economy and lead to a stronger downturn across the globe and perhaps even see something else break? A hard landing, anyone?

That’s definitely a key consideration when viewing the major themes, not only for the months ahead but also for the year to come. If you’re considering any structural positions in the market, this should be the question you need to ask yourself.

The issue for market players is, there are no easy answers to this at the moment.

Inflation falling is definitely a welcome development for the economy but we’re still not in the clear yet, in saying with absolute certainty that it will head back to the 2% mark. As for the impact of higher rates on the economy, well let’s just say that markets were also caught rather blindsided by the banking crisis in March to April. So, that speaks to the level of awareness – or should I say lack thereof – in identifying what may break next.

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

Last Friday the US NFP report missed slightly the expectations for
the first time after 14 consecutive beats. The USD weakened across the board,
but it doesn’t look like the NFP is the main culprit. In fact, the market’s
expectations for a 25 bps hike at the July FOMC meeting remained unchanged as
the other details in the report were solid and the average hourly earnings
ticked higher.

The RBNZ, on the other
hand, decided to pause at the last meeting, and it should keep rates on hold as
long as the inflation numbers continue to show disinflation and the other top
tier economic indicators don’t show too much strength. In fact, the NZDUSD strength
is more about the USD weakness.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD is still
eyeing the 0.63 handle where we have the confluence with the
trendline and the
78.6% Fibonacci retracement level.
After the V-shaped recovery seen at the end of June, the bullish momentum
started to wane as the market is eagerly waiting to see the US CPI report
tomorrow.

NZDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that NZDUSD
rejected the swing high level at 0.6222. The bullish bias remains though as the
price has been printing higher lows. We might see a break to the upside soon,
but the US CPI report is a big risk. The measured target of the bullish flag that was
broken the last week remains the 0.63 handle.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price is getting closer to the black trendline. This trendline defines the
ascending triangle pattern, so we should see the buyers stepping in here to
target a break to the upside and eventually a rally to the 0.63 handle. If the
price breaks below the trendline, the pattern would be invalidated and we
should see a fall into the 0.6120 support and, upon a further break, a selloff
towards the 0.60 handle.

Upcoming Events

Tomorrow all eyes will be on the US CPI
report. A miss to the expectations, especially on the core numbers, should
weaken the USD as the market would price out the hawkish bets and even bring
forward rate cuts bets. On the other hand, if the data beats forecasts, we
should see the USD strength across the board as the market would price in a
more hawkish Fed. We conclude the week with the US Jobless Claims on Thursday
and the University of Michigan Consumer Sentiment report on Friday.

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

I’m not going to keep beating a dead horse but with the retreat in bond yields today, it is adding to the downside momentum in USD/JPY at the moment. 10-year Treasury yields are down 4.6 bps to 3.960% and that is keeping a drag on the currency pair, which is down 0.8% or 110 pips to 140.20 currently.

I talked more about the technical considerations here earlier but after the rejection at 145.00 coming into July, the pair is pretty much caught in a big void between that and the 140.00 level. So, we’re pretty much just moving towards the lower extreme with the US CPI data in focus tomorrow.

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

The US NFP report last Friday missed slightly
expectations for the first time after 14 consecutive beats, but the inside data
remained solid with the average hourly earnings coming higher than expected,
which is something that the Fed don’t want to see. In fact, the market’s
probability for another 25 bps hike at the July FOMC meeting remained unchanged
at roughly 90%.

The RBA kept its cash rate
unchanged with the usual hawkish comments and the promise of doing more if the
data suggests so. They repeated their determination of bringing the inflation
rate to target and that they will do what is necessary to achieve that. Central
banks are seeing the end of the hiking cycle so they are guided by the incoming
economic data.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that after the big
selloff from the 0.69 handle, AUDUSD got stuck in a range between the 0.66 and
0.67 levels. The moving averages have
crossed to the downside but in a rangebound market they can give false signals.
The sellers should keep on piling in around the 0.67 level and the red 21
moving average for another big push to the downside. The buyers, on the other
hand, will need the price to break above the 0.67 handle with conviction to
start targeting the 0.69 resistance.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see more clearly the
rangebound price action between the 0.66 support and 0.67
resistance. There’s nothing to do here other than waiting for a breakout on
either side supported by a fundamental catalyst and then go with the flow. It’s
highly likely that tomorrow’s US CPI report will provide the breakout, so watch
out for that.

AUDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see how the
moving averages become pretty useless in a rangebound market. More aggressive
traders can “play the range” by buying at support and selling at resistance.
But the two main scenarios are clear:

• A break to the upside should see the
  buyers piling in and target the 0.69 handle.
• A break to the downside will give the
  sellers control and lead to a selloff into the 0.6459 low.

Upcoming Events

The main event of the week is the US CPI report
tomorrow. If we see the data beating expectations, especially on the core
numbers, the USD should strengthen across the board and lead to a big selloff
in the AUDUSD pair. On the other hand, if the data misses expectations, particularly
on the core side, we should see the greenback under pressure and the AUDUSD
pair flying into the 0.69 handle. After the US CPI report, the attention will
switch to the US Jobless Claims on Thursday and the University of Michigan
Consumer Sentiment report on Friday.

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