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.

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.

There is a slight extension to the narrow ranges earlier but it is looking rather one-sided. The greenback is the one dragged lower now in European morning trade, with EUR/USD pushing to a one-month high of 1.0853. The pair is now up 0.2% on the day, with other major currencies also posting roughly similar gains against the dollar.

USD/JPY is down 0.1% to 161.50 while GBP/USD is up 0.2% to 1.2878, helped by a better UK monthly GDP data here. Besides that, USD/CHF is also down 0.2% to 0.8980 and AUD/USD up 0.2% to 0.6760 on the day.

The flows here are quite isolated though, with equities and bonds not really hinting at much. S&P 500 futures remain tepid, down 0.1% on the day. Meanwhile, 10-year Treasury yields are flat at 4.280% currently.

It looks to be some positioning flows as we start to draw closer to the main event later today. It’s all about US data with the CPI report in focus alongside the weekly jobless claims.

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

• Prior -2.6%
• Market index 206.1 vs 206.5 prior
• Purchase index 144.3 vs 142.9 prior
• Refinance index 532.3 vs 544.1 prior
• 30-year mortgage rate 7.00% vs 7.03% prior

Mortgage applications fell marginally in the past week as a drag in refinancing activity outweighed a slight rise in purchase activity. Overall, this continues to point to a more subdued sentiment in the housing market – which has been the case over the past year or so.

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.

We will
see if the market will be able to keep the positive sentiment on soft landing
hopes or start to worry about a recession. Yesterday, Fed Chair Powell testified to Congress but he didn’t offer anything in terms of forward
guidance as they want to see more data before signalling any action.

The GBP, 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. This week, we are seeing a consolidation as
the market awaits the US CPI and Jobless Claims figures tomorrow.

On the monetary policy
front, the BoE
in June left the door open for a rate cut in August with the market probability
standing at 60%. 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 is struggling around the 1.28 resistance as the market awaits the release of
the US CPI and Jobless Claims figures tomorrow. This is where the sellers
continue to step in with a defined risk above the resistance to position for a
drop back into the 1.2635 support. The buyers, on the other hand, will want to
see the price breaking higher to increase the bullish bets into the 1.29 handle
next.

GBPUSD 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 1.2750 level where we can find the confluence
of the previous swing level and the 38.2% Fibonacci
retracement level. The sellers, on the other hand, will want to see the
price breaking lower to increase the bearish bets into the 1.2635 support.

GBPUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we are
seeing some pickup in bullish momentum today although the buyers will want to
see the price breaking above the most recent lower high at 1.2825 before piling
in with more conviction. On the other hand, a break below the minor counter-trendline
might lead to an increase in the bearish momentum and provide the correction
into the 1.2750 level. The red lines define the average daily range for today.

Upcoming
Catalysts

Tomorrow will be the most important day of the week as we get the US CPI and the
US Jobless Claims figures. On Friday, 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.

For some context, the BOJ held discussions with bond market participants over the last two days before announcing their official decision on tapering later this month. It is being reported that many private banks called for the Japanese central bank to halve its monthly purchases by around 2026.

While there was apparently a varying amount of views put forth, there was many who argued for the BOJ to trim their monthly bond buying to around ¥3 trillion two years from now.

Meanwhile, an added source also reveals that the BOJ is likely imagining a scenario where it tapers its bond buying to around ¥2 trillion by March 2026.

All of this fits with the idea that the tapering process is going to be a more gradual one, even if the BOJ decides with a larger amount to begin with at its upcoming meeting on 31 July.

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.

We will
see if the market will be able to keep the positive sentiment on soft landing
hopes or start to worry about a recession.Yesterday, Fed Chair Powell testified to Congress but he didn’t offer anything in terms of forward guidance as they want to see more data before signalling any action.

The AUD, 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. This week, we are seeing a consolidation as the market awaits the US CPI and Jobless Claims figures tomorrow.

On the monetary policy front, the Aussie got a boost from another
hot monthly CPI report last month which raised the chances of
a rate hike, although RBA’s Hauser poured some cold water on the
expectations as he said that he would rather hold rates steady for longer.

AUDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that AUDUSD broke out of the two-month long range last week and consolidated
just above it ever since. The resistance
around the 0.6713 level has
now become support.

That’s where we can expect
the buyers to keep piling in with a defined risk below it to position for a
rally into the 0.6870 level next. The sellers, on the other hand, will want to
see the price falling back below the 0.6713 level to regain some control and
position for a drop into the 0.66 handle.

AUDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the consolidation just above the 0.6713 level as the market awaits
the key economic data tomorrow with the release of the US CPI and Jobless Claims
figures. For now, we will likely keep ranging here until we get a breakout on
either side.

AUDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we now have a good resistance zone around the 0.6750 level. The buyers
will want to see the price breaking higher to increase the bullish bets into new
highs, while the sellers will likely keep on leaning on the resistance to
position for a break below the 0.6713 level. The red lines define the average daily range for today.

Upcoming
Catalysts

Tomorrow will be the most important day of the week as we get the US CPI and the
US Jobless Claims figures. On Friday, 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.