Headlines:

• US inflation to hog the spotlight in trading today
• What is the distribution of forecasts for the US CPI?
• The CPI importance is fading
• Dollar a touch softer awaiting the US CPI report later
• UK May monthly GDP +0.4% vs +0.2% m/m expected
• Germany June final CPI +2.2% vs +2.2% y/y prelim
• IEA sees oil demand growth slowing as China consumption eases
• German manufacturers still taking a more pessimistic view for the remainder of the year

Markets:

• EUR and GBP lead, CAD lags on the day
• European equities higher; S&P 500 futures down 0.1%
• US 10-year yields up 0.4 bps to 4.284%
• Gold up 0.4% to $2,381.19
• WTI crude up 0.4% to $82.44
• Bitcoin up 1.9% to $58,477

It was a mostly sideways session and very much expected in the build up to the US CPI report today.

The dollar is marginally softer but all bets are off until we get to the inflation numbers later. There wasn’t much in the moves as it is just a light extension of the narrow ranges earlier.

The euro and pound are up by 0.2% against the dollar at 1.0850 and 1.2870 respectively. But both are holding only within a 25 pips and 30 pips range respectively on the day.

USD/JPY is also just lightly changed, down 0.1% to 161.55 in a rather mundane session.

In terms of data, UK monthly GDP was a beat but nothing that is really too market moving on the day.

US futures remain more tepid while bond yields are also keeping more tentative. This as all eyes are on the main event coming up later.

Hopefully, it’ll kick start some action in what has otherwise been quite a dreadful week in terms of currency moves.

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

Michael Brown, Senior Research Strategist at Pepperstone, shared on X an interesting finding today. „The EUR overnight implied volatility sits at 8.8% into CPI later on, implying a move of +/-40 pips over the tenor. That’s the lowest level o/n implieds have traded on ‚CPI Day‘ since back in 2021“.

This is just another evidence showing us that the importance of inflation data is starting to fade and the market’s focus has shifted towards growth and the labour market. There are two main reasons for such development:

Central Bank Focus

The first one is that the Fed has been mentioning countless times that they are very focused on the labour market and that an unexpected deterioration will call for a rate cut. In fact, the only path for interest rates at the moment is downwards. If inflation stays high, the Fed will just keep rates steady, but if it continues to ease, the Fed will cut.

Business Cycle

The second reason is tied to the business cycle. In different parts of the cycle, we can see the market focusing on different things. For example, coming out of a recession, nobody cares about inflation because there’s very little pressure on it given that the economy is recovering and there’s lots of unutilised resources in the economy.

On the other hand, when we are well into an expansion, inflation starts to become the main focus as the market expects the central bank to tighten policy to slow down the economy and bring it back in balance. If the central bank keeps conditions tight for too long or it overtightens, then the economy could slip into a recession.

Right now, we are in a „slowing but growing“ phase and the Fed will need to time lots of things correctly to achieve the soft landing. If it fails to do it, the next thing we will be talking about is a hard landing.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

In my view, it is going to be a quite a task for investors to pick up on any fear from the US CPI report later. The estimate shows that we should get a softer headline reading, although core annual inflation is estimated to remain steady as in May.

If it plays out that way and the details are somewhat similar to last month, it will be easy for investors to keep arguing that the disinflation process is still playing out; albeit very gradually.

If it doesn’t, I reckon investors might react negatively at first but will then brush this aside as just being a bump in the road. That seems to be the go to story that central banks are trying to sell these days. And as long as it fits with the more bullish narrative, I foresee stocks will have no qualms with that.

The only way I can imagine equities facing a significant dent is if the main numbers are much higher than anticipated and the details also reveal a setback to last month’s report. In that sense, it’s a tall order to really get all of that in line.

Otherwise, no matter what the outcome is, I can imagine stocks spinning the narrative to however it pleases.

The S&P 500 is already up a little over 3% in July trading thus far. The move higher also has a strong seasonal backing to it, so that could yet exacerbate any continued bullish sentiment in the week(s) ahead.

There will definitely be some pushing and pulling before the month is over. However, stocks certainly do look poised to challenge the gains in February and May at this stage. It’s all on the shoulders of tech shares now, again and again.

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

Fundamental
Overview

The USD weakened across the
board last Friday following the soft US NFP report. The data showed some more labour
market cooling with an increase in the unemployment rate and a decrease in wage
growth. We basically have an economy that is slowing but still growing. The
market seems to be taking it as good news as it still expects a soft landing.

The EUR, on the other hand,
gained last week against the US Dollar mainly because of the risk-on sentiment
as the US data continued to support at least two rate cuts from the Fed but
didn’t send recessionary signals. On the monetary policy front, the ECB members
continue to repeat that they will wait for the data throughout summer before
deciding on a rate cut in September.

EURUSD Technical
Analysis – Daily Timeframe

On the daily chart, we can
see that EURUSD eventually extended the rally above the 1.08 handle and it’s
now targeting the resistance
around the 1.0885 level. That’s where we can expect the sellers to step in to
position for a drop back into the 1.0812 support. The buyers, on the other
hand, will want to see the price breaking higher to increase the bullish bets into
the 1.10 handle next.

EURUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that from a risk management perspective, the buyers will have a better risk
to reward setup around the 1.0812 support where we can also find the trendline for confluence. The sellers, on the other hand,
will want to see the price breaking lower to turn the bias more bearish and position
for a drop into the 1.0727 level next.

EURUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the recent price action with the bounce on the 1.0812 level
and the continuation of the uptrend. Today we get the US CPI and the US Jobless
Claims figures, so we might see a spike either into the 1.0885 resistance or
the trendline. The red lines define the average daily range for today.

Upcoming
Catalysts

Today is the most important day of the week as we get the US CPI and the US
Jobless Claims figures. Tomorrow, we conclude the week with the US PPI and the
University of Michigan Consumer Sentiment survey.

This article was written by Giuseppe Dellamotta at www.forexlive.com.