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.

Headlines:

• Treasury yields look to resume the latest drop this week
• Saudi Arabia says will extend voluntary oil cuts until the end of December 2024
• The Fed and ECB may not be the biggest central bank risks to markets this month
• ECB’s Vasle: Core inflation remains high, resilient
• Italy June final CPI +6.4% vs +6.4% y/y prelim
• SNB total sight deposits w.e. 14 July CHF 494.7 bn vs CHF 486.6 bn prior
• JP Morgan slashes China full year GDP growth forecast to 5.0% from 5.5% previously

Markets:

• JPY leads, NZD lags on the day
• European equities lower; S&P 500 futures down 0.1%
• US 10-year yields down 3.3 bps to 3.787%
• Gold up 0.1% to $1,957.18
• WTI crude down 1.3% to $74.47
• Bitcoin flat at $30,202

The dollar is keeping more mixed today after last week’s drop, with equities looking more tepid and bond yields holding slightly lower on the day.

There wasn’t any major headlines to impact the greenback or risk sentiment, though we did get one for the oil market. Saudi Arabia said it would extend its voluntary output cuts until the end of next year, prompting a jump in oil prices.

However, that was quickly faded with WTI crude moving up from $74.15 to $76.00 only to erase all of that during the session.

Going back to the dollar, it is keeping little changed against the euro and pound. Meanwhile, USD/CHF is slightly lower and keeping just under 0.8600 as the break through the floor holds.

USD/JPY is lower as well with Treasury yields slightly lower on the day, holding around 138.10-20 levels mostly in European trading.

The antipodeans are the laggards, with AUD/USD down 0.3% to 0.6815 and NZD/USD down 0.5% to 0.6335 after following the fall in the Chinese yuan, which owes to a more disappointing Q2 GDP report here.

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

Following the miss across
the board in the US CPI report, the market is increasingly confident
that we are heading towards a soft landing. Such expectations are also supported
by the strong labour market, as we confirmed again by the US Jobless Claims last Thursday, and the rising
consumer sentiment, as seen in the University of Michigan report last Friday. As long as the
labour market continues to hold, we are likely to see new highs for the Nasdaq
Composite.

Nasdaq Composite Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the buyers kept
leaning on the red 21 moving average to
position for more upside and eventually succeeded as the US CPI missed
expectations and led to a strong rally. The Nasdaq Composite should now be
eyeing the 14649 level where we should see strong sellers stepping in.

Nasdaq Composite Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the Nasdaq
Composite broke out of an ascending triangle patter.
Generally, a breakout on either side leads to strong momentum in the direction
of the breakout, so the buyers have also this factor stacked in their favour.
At the moment we are seeing a pullback from overstretched levels as the price
was too far from the blue 8 moving average, and in such instances, we can generally
see some consolidation or a pullback into the moving average before another
strong move.

Nasdaq Composite Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we
have two possible levels where the buyers may lean on to:

• The 38.2% Fibonacci
  retracement level near the 14000 level.
• The 61.8% Fibonacci retracement level near
  the previous resistance now
  turned support.

The sellers, on the other hand, should
wait for the price to break below the 13800 level before piling in and extend
the fall into the 13174 support.

Upcoming
Events

This week there are only two notable events: the US
Retail Sales tomorrow and the US Jobless Claims on Thursday. Given the
sentiment in the markets, we are likely to see a big selloff only if the data
misses expectations by a big margin as a little miss should just be an
opportunity to buy the dip. Conversely, higher than expected data should
reinforce the soft-landing narrative and lead to new highs.

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

The latest retreat continues to weigh on yields, with bonds still catching a bid today in European morning trade. The drop last week comes after 10-year yields met its March highs near 4.09% before falling back below the key 4% threshold and here we are now, down roughly 30 bps from there to 3.78%.

The fall was validated by the softer US CPI report last week. However, traders are still seeing good odds of a 25 bps rate hike by the Fed next week. Fed funds futures are showing a ~96% probability of such a move. But when you look out to the curve into next year, there has been a climb down in market pricing as compared to two weeks ago:

Put together, that reflects a market perception that is less hawkish/more dovish on the Fed outlook. And that view is so far being vindicated by the data, or at least the most important one – that being the US CPI report.

If that trend continues, it should lead to lower yields and added pressure on the dollar unless we do see economic conditions deteriorate significantly and/or there is a change in the hawkish gears among other major central banks.

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

I wouldn’t replace my real dog with a robot driven by AI, would you?

Artificial Intelligence (AI) is transforming our world, introducing profound changes in numerous domains, including writing emails, browsing the web, and even stock picking and trading. Yet, as I watched my dog, Mika, the thought occurred to me: how far are we willing to let AI replace the authentic experiences in our lives?

Imagine a future where AI has evolved to such an extent that I could replace Mika with a robotic counterpart, one so perfectly designed that it would be nearly impossible to distinguish from a real dog. This AI-driven robot would be the epitome of a perfect pet, never misbehaving or causing inconveniences.

Impeccable fur is the new black

With her impeccable fur and flawless behavior, this robot dog would never wake me up in the middle of the night with incessant barking, or leave unwanted surprises on the floor. Continuously learning and adapting, she would evolve to meet my needs perfectly, embodying the ideal of a ‘good dog.’

Faced with this futuristic scenario, I asked myself: Would I replace Mika with this flawless robotic dog? To my surprise, the answer was a resounding no.

Why not? Simply put, there’s something irreplaceable about the authenticity of Mika, about her realness. I would choose a real dog over a robot, even if the latter promises superior productivity or performance.

This decision reflects a human preference that I believe will persist as AI continues to disrupt various sectors. While AI might streamline many tasks, it will not completely replace the human desire for authentic experiences.

What about AI taking over investing and stock picking?

The same principle applies to stock picking, but to a much lesser extent than my example with Mika. Some investors may have a favorite stock or company – take Tesla, for instance. They might totally love Elon Musk for various reasons, choosing Tesla not based solely on valuation related P/E multiples or any measurable factor, but for their personal human preference. Even when AI suggests alternatives that may perform better, they still choose Tesla – much like I choose Mika.

But why to a lesser extent? Because people would still thrive to invest to generate a profit and would, thus, be inclined to trust or at least test advanced AI driven investment tools. Still, there will always be people that just love Elon Musk like I love Mika, and would not let AI override that.

In a world increasingly driven by AI, where do we draw the line? How much of our authentic, human experiences are we willing to replace for the sake of productivity?

As for me, I wouldn’t trade Mika for a robot, no matter how perfect. What about you? Would you replace your beloved pet with an AI-driven robot? And what do you think about Elon and Tesla stock, anyway? Please comment below.

This article was written by Itai Levitan at www.forexlive.com.

Alongside a hold at key resistance in AUD/USD here, USD/JPY is the other major pair that might act as a saving grace for the dollar. The greenback looked to be in dire straits after last week’s rout but there is still one key technical level to watch despite the several breakdowns in EUR/USD, GBP/USD, and USD/CHF.

USD/JPY may have already fallen by roughly more than 700 pips at the lows this month but part of that owes to a sharper correction in the yen itself alongside BOJ speculation here.

Add that to the dollar suffering last week and we came close to testing the confluence of the 100 (red line) and 200-day (blue line) moving averages on Friday. That saw buyers step in to defend the level with the dollar also taking a bit of a breather, rebounding to back above 138.00 as seen currently.

The key support region is seen at 137.01-03 and that pretty much holds the key in unlocking the next potential leg lower for the dollar. A break below that sets the pair up for a potentially quick drop towards 135.00 next.

On the flip side, buyers could also reflect the strength of their conviction by holding at the key support region above. That will be a good baseline to work with in order to try and work out a rebound at least. Things are certainly heating up and the technicals are coming into extreme focus as we look towards the Fed and BOJ policy decisions next week.

The overall mood today is not as inviting as we saw in the past week or so but it is still early and we also got US retail sales data as a potential trigger coming up tomorrow.

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

UPCOMING EVENTS:

Monday:
PBoC MLF.

Tuesday:
US Retail Sales, Canada CPI.

Wednesday:
New Zealand CPI, UK CPI.

Thursday:
PBoC LPR, Australia Jobs Report, US Jobless Claims.

Friday:
Japan CPI, UK Retail Sales.

Monday:
There’s no expectations for the PBoC to cut the MLF rate as the recent comments
by the PBoC deputy governor Liu Guoqiang last Friday indicated that there’s no
fear of deflation as they expect inflation to have a U-shaped recovery in the
second half of the year. The Medium-Term Lending Facility Rate (MLF) is the
main rate at which the central bank lends to big commercial banks. The MLF acts
as a guide for the Loan Prime Rate (LPR).

Tuesday:
The US Retail Sales are expected to increase by 0.5% vs. 0.3% prior, while the
Core measure is seen at 0.3% vs. 0.1% prior. The Control Group is expected to
rise by 0.2% vs. 0.2% prior. The US data has showed strength lately and the
last week the big miss in US Core CPI coupled with the big jump in Consumer
Sentiment on Friday, is giving the soft-landing narrative a tailwind. The
Retail Sales report should miss by a very big margin to cause fear in the
markets at this point.

The Canada CPI Y/Y is expected at 2.9% vs.
3.4% prior and the M/M figure at 0.3% vs. 0.4% prior. The Bank of Canada is
focused on underlying inflation measures for its policy decisions, so the data
points to watch are the Core CPI and the BoC’s favourite measures: CPI-common
expected at 5.0% vs. 5.2% prior, CPI-trimmed expected at 3.6% vs. 3.8% prior and
CPI-median expected at 3.7% vs. 3.9% prior.

Wednesday:
The New Zealand CPI (Q2) Y/Y is expected at 5.9% vs. 6.7% prior, while the Q/Q
reading is seen at 0.9% vs. 1.2% prior. The RBNZ last week left its official
cash rate unchanged at 5.5% as expected as the central bank aims at “remaining
at the restrictive level for the foreseeable future to ensure that consumer
price inflation returns to the 1-3% annual target range”.

The UK CPI Y/Y is expected at 8.2% vs.
8.7% prior and the M/M figure is seen at 0.4% vs. 0.7% prior. The Core CPI Y/Y
is expected at 6.8% vs. 7.1% prior, while the M/M reading is seen at 0.4% vs.
0.8% prior. Last time both the employment and inflation reports surprised to
the upside and prompt the BoE to surprise with a 50-bps rate hike. This time
the employment report surprised on the wages side but missed on the jobs side,
so if we see a miss in the data, the BoE should go ahead with a 25-bps
increase. On the other hand, if the data runs hot again, they should hike by
another 50 bps.

Thursday: The PBoC is likely to change the LPR rates
only if it surprises with a change in the MLF rate on Monday.

Last time the Australian Jobs report
surprised to the upside across the board. This time the expectations are for
Employment Change to increase by 17.0K vs. 75.9K prior and the Unemployment
Rate to remain unchanged at 3.6% and the Participation Rate at 66.9%. The RBA
would like some softening in the labour market to bring inflation back to
target.

The US Initial Claims are expected at 243K
vs. 237K prior and Continuing Claims at 1725K vs. 1729K prior. The US Labour
Market remains very strong and we haven’t seen any notable sign of weakness yet
with Jobless Claims still running near record lows.

Friday:
The Japan CPI Y/Y is expected at 3.5% vs. 3.2% prior and the Core Y/Y reading
is seen at 3.3% vs. 3.2% prior. The CPI ex-Food & Energy Y/Y is expected at
4.2% vs. 4.3% prior which is the highest reading in four decades. The BoJ is
still stuck with its dovish monetary policy, and they haven’t hinted to any
change at the upcoming meeting. Nevertheless, there are expectations for a
tweak in the YCC policy as the BoJ is seen raising its FY2023 inflation
forecast above 2% and a former BoJ director said that he expects the central
bank to widen the YCC band from -/+ 0.50% to -/+1.00% at the July meeting.

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