The 2-10 year spread has not been positive since July 2022. The most recent high close (most narrow negative spread) is coming near -16 basis point. Today the spread rose to -27.3 basis point which would be its highest close since January 29.

Since June 25, the spread has moved from -50 basis points to the current -27.3 basis points. It’s still negative, but the hope that the Fed will ease rates – and maybe more than expectations – is helping the move.

Another dynamic may be that if former Pres. Trump is elected president, it could lead to higher inflation on the back of increased tariffs (trade war) and higher deficits (ironically). After the presidential debate where Biden was beaten soundly, the flow of funds was in the steepening favor.

This article was written by Greg Michalowski at www.forexlive.com.

Crude oil futures are settling the day at $82.21. That is down $0.41 or -0.50%.

For the trading week, the price is down -1.21% after closing last week at $83.16.

The decline is the first after four consecutive weeks of gains which took the price up from a low during the week of June 3 at $72.48 to a high last week of $84.52.

The most recent high price from last week stalled against a downward-sloping trendline (see daily chart below). The low price this week reached $80.81. That was within $0.41 of its 100-day moving average at $80.40 (the current 100-day moving average is at $80.49).

Next week, the 100 day moving average will continue to be a key barometer on the downside. The topside trendline which currently comes in near $84.21 will be a key level that if broken along with the high price from last week at $84.52, would be more bullish.

This article was written by Greg Michalowski at www.forexlive.com.

J.P. Morgan, Wells Fargo, and Citigroup kicked off the earnings season today. Yesterday PepsiCo did release its earnings as well.

So how does next week’s earnings calendar look?

Monday, July 15

• Goldman Sachs
• BlackRock Tuesday,

Tuesday, July 16

• Bank of America
• United health group
• Progressive
• Morgan Stanley.
• Charles Schwab.
• PNC
• Interactive Brokers
• JB Hunt

Wednesday, July 17

• Johnson & Johnson
• United
• Alcoa
• Discover
• Kinder Morgan

Thursday, July 18

• Taiwan Semi Conductor
• Nokia
• DR Horton
• Netflix
• Intuitive Surgical
• PPG

Friday, July 19

• American Express
• Halliburton
• Comerica
• Travelers

When are the Magnificent 7 releasing its earnings this cycle?

• Alphabet, July 23
• Microsoft July 23
• Tesla July 23
• Amazon, July 25
• Meta Platforms, July 31
• Apple, August 1
• Nvidia, August 15

This article was written by Greg Michalowski at www.forexlive.com.

Headlines:

• Japan top FX diplomat Kanda declines to comment on suspected intervention yesterday
• BOJ data suggests Japan may have spent over ¥3 trillion on intervention yesterday
• What has changed after the US CPI report?
• Japan to slash economic growth forecast later this month – report
• More Japanese households anticipate prices to be higher in the next year – BOJ survey
• China June M2 money supply +6.2% vs +6.8% y/y expected
• France June final CPI +2.2% vs +2.1% y/y prelim
• Spain June final CPI +3.4% vs +3.4% y/y prelim

Markets:

• GBP leads, JPY lags on the day
• European equities higher; S&P 500 futures flat
• US 10-year yields up 2.5 bps to 4.218%
• Gold down 0.6% to $2,400.77
• WTI crude up 0.9% to $83.35
• Bitcoin down 0.5% to $57,250

It was a much calmer session following the big swings after the US CPI report yesterday and in part in Asia trading today as well.

The Japanese yen stole the spotlight after Tokyo decided to intervene yesterday, in what was a rather unorthodox move on their part. USD/JPY continued to swing in Asia trading but ultimately settled down when we got to European morning trade. The pair hugged levels around 159.00-30 for the most part, even as BOJ data suggested that Japan did step into the market.

Besides that, the dollar was a touch softer across the board. EUR/USD is up 0.2% to 1.0890 and GBP/USD up 0.4% to 1.2960 in a light extension to the post-CPI moves.

As for the broader market mood, it was more tentative to some degree. S&P 500 futures remain flattish as we get into earnings season. JP Morgan topped Q2 revenue estimates while Wells Fargo reported a miss amid a decline in net interest income. In Europe, stocks remain modestly optimistic in keeping the rebound over the last two days.

Elsewhere, bond yields are up slightly after the overnight fall with 10-year yields in the US still holding at the June low of 4.19%. As for commodities, gold and silver are both pulling back wit the former dragged back towards $2,400 while the latter is down over 2% to $30.69 on the day.

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

Fundamental
Overview

The USD weakened across the
board yesterday following another soft US CPI report and benign Jobless Claims figures. The market not only fully
priced in a rate cut in September but also started to price in some chances of
a back-to-back rate cut in November.

Overall, we had a
goldilocks data release with an economy that is slowing but still growing. This
should support the soft-landing narrative and be positive for the risk
sentiment.

The GBP, on the other hand,
keeps on gaining against the US Dollar mainly because of the risk-on sentiment
as the US data continues to support at least two rate cuts from the Fed without
sending recessionary signals.

On the monetary policy
front, the BoE in June left the door open for a rate cut in
August but BoE’s
Pill poured some cold water on those expectations. The next UK CPI report on
July 17th will likely decide whether the central bank will be able
to deliver the first cut in August or wait some more time.

GBPUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that GBPUSD managed to get past the 1.28 handle this week on some hawkish
comments from BoE’s Pill and eventually extended the rally above the 1.29
handle following the soft US CPI report. All else being equal, the target
should now be the cycle high at 1.3140.

GBPUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we now have a trendline
defining the current bullish momentum. From a risk management perspective, the
buyers will have a better risk to reward setup around the trendline to position
for a continuation of the rally into the 1.3140 level next. The sellers, on the
other hand, will want to see the price breaking below the trendline to turn the
bias more bearish and pile in for a drop back into the 1.28 handle.

GBPUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that after some consolidation around the 1.29 handle, the price restarted
going up today as the positive risk sentiment weighs on the greenback. There’s not
much to do here from a trading perspective as chasing the move at these levels doesn’t
look good. The red lines define the average daily range for today.

Upcoming
Catalysts

Today 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.

• Especially concerned about negative impacts of weak yen

As per usual, they are keeping up this facade of being „unable to confirm nor deny“ the intervention move. But after the purported leak yesterday here, they know and we know that these comments are just for show.

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

Fundamental
Overview

The USD weakened across the
board yesterday following another soft US
CPI report and benign Jobless
Claims figures. The market not only fully priced in a rate cut in September
but also started to price in some chances of a back-to-back rate cut in
November. Overall, we had a goldilocks data release with an economy that is
slowing but still growing. This should support the soft-landing narrative and
be positive for the risk sentiment.

Even if the US Dollar
weakens against the other major currencies though, the JPY in this environment
should keep losing ground and the Japanese officials can’t do much to reverse
the trend unless the fundamentals change. Yesterday, the Japanese intervened
right after the soft US CPI report as the strategy now seems to have shifted
from buying the Yen in low liquidity times to propping it up on soft US data.

Overall, the data shouldn’t
have changed much as we will likely need weak US growth data to see some sustained
Yen strength, although it might be short lived if it’s not enough to make the
market to price in more aggressive rate cuts for the Fed on fears of a
recession. As long as we have stable global growth and positive risk sentiment,
the JPY should find it hard to maintain any strength.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY dropped all the way back to the key trendline
around the 158.00 handle and bounced off of it as the buyers piled in to buy
the dip. The sellers will want to see the price breaking below the trendline to
turn the bias more bearish and increase the bets into the 154.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the bounce on the trendline and the support
zone around the 158.00 handle. If the price gets back there, we can expect the buyers
to defend the support and position for the continuation of the uptrend. A break
above the 160.00 handle should give the buyers even more conviction and
increase the bullish momentum into a new cycle high.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have some consolidation at the moment. If the price breaks above the
159.45 level we can expect even more buying pressure coming into the market as
the intervention gets erased further. The white lines define the average daily range for today.

Upcoming
Catalysts

Today 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.

Yesterday, we got some goldilocks US data with another soft US CPI report and good US Jobless Claims. First of all, better than expected jobless claims should quell fears of a deteriorating labour market, at least in the short term. One thing to note is that the data might have been distorted by the shorter week as we had Independence Day last week. Nonetheless, the next week release should give a better picture.

The US CPI, on the other hand, surprised to the downside and it was good news across the board. Moreover, we saw further easing in the policy sensitive OER measure with the Y/Y rate easing to 5.4% and the 3-month annualised rate to 3.6%. The Cleveland Fed new tenant index is considered a leading indicator and it points to further easing in the months ahead. Below you can see the changes in various measures.

The market is now basically certain that we will get a rate cut in September and December, but it has also started to price in a third cut in November. There are some speculations that the Fed might even cut rates in July but I think that’s out of the equation. I can see the Fed cutting rate in July only if initial claims spike big in the next weeks or the stock market crashes like in 2018 signalling a possible policy mistake.

It’s highly likely though that the Fed will be dovish in July and if we get another benign CPI report in August, Fed Chair Powell will deliver a rate cut in August by pre-committing to a cut in September at the Jackson Hole Symposium. September will just be a formality, but if the data will give them even more confidence, then they will be able to ease conditions even more with a dovish SEP.

The current estimate for the Core PCE Y/Y measure is 2.4%, which would be very good news for the Fed. We will see how the estimate will change today after the US PPI data.

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

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.