Sample Category Title

The market's initial reaction to US CPI data has been relatively subdued. While both headline and core CPI readings slowed in July, they remain elevated. This ongoing disinflation is a positive sign for the Fed, but the pace is not rapid enough to justify a larger rate cut in September. As a result, US stock futures are treading water, and 10-year Treasury yield is ticking up slightly.

In the currency markets, Euro has emerged as the clear winner today, bolstered in part by its rebound against the British Pound. Sterling is losing momentum following lower-than-expected UK CPI data, which now makes a BoE rate cut in September a closer call. Dollar is the second strongest currency today, although it remains within a tight range against most majors, showing noticeable movement only against Euro and New Zealand Dollar.

On the other hand, Kiwi continues to be the worst performer, holding onto most of its losses from the RBNZ's surprise rate cut. With RBNZ beginning its easing cycle earlier than anticipated, there is room for one or even two more rate cuts this year. Yen, Australian Dollar, British Pound, Swiss Franc, and Canadian Dollar are mixed, trading without clear direction.

Technically, an immediate focus is on whether DOW could break through 39807.45 support turned resistance today. If realized, that would indicate that correction from 41376.00 has completed already. More importantly, successful defense of 38000.96 cluster support (38.2% retracement of 32327.20 to 41376 at 37979.35) would keep the near term up trend intact for upside breakout, sooner rather than later.

In Europe, at the time of writing, FTSE is up 0.17%. DAX is up 0.41%. CAC is up 0.40%. UK 10-year yield is down -0.0315 at 3.861. Germany 10-year yield is up 0.019 at 2.208. Earlier in Asia, Nikkei rose 0.58%. Hong Kong HSI fell -0.35%. China Shanghai SSE fell -0.60%. Singapore Strait Times rose 0.85%. Japan 10-year JGB yield fell -0.0337 to 0.814.

US CPI falls to 2.9% yoy in Jul, core CPI down to 3.2% yoy

US CPI rose 0.2% mom in July, matched expectations. CPI core (all items less food and energy) rose 0.2% mom, matched expectations. Energy prices were unchanged over the month while food prices increased 0.2% mom.

For the 12-month period, CPI slowed from 3.0% yoy to 2.9% yoy, below expectation of 3.0% yoy. Headline CPI reading was the lowest since March 2021. CPI core slowed from 3.3% yoy to 3.2% yoy, matched expectations. CPI core reading was the lowest since April 2021. Energy prices rose 1.1% yoy while food prices rose 2.2% yoy.

Eurozone industrial production falls -0.1% mom in Jun, EU down -0.1% mom

Eurozone industrial production fell -0.1% mom in June, much worse than expectation of 0.4% mom rise. Industrial production increased by 0.7% for intermediate goods, 1.9% for energy, 0.9% for capital goods, and 3.8% for durable consumer goods. Production decreased by -2.5% for non-durable consumer goods.

EU industrial production fell -0.1% mom. Among Member States for which data are available, the largest monthly decreases were recorded in Ireland (-7.8%), Belgium (-6.5%), Croatia and Portugal (both -3.7%). The highest increases were observed in Romania (+4.0%), Finland (+3.6%) and Slovakia (+2.1%).

UK CPI rises to 2.2% in Jul, core down to 3.3%, both below expectations

UK CPI rose from 2.0% yoy to 2.2% yoy in July, below expectation of 2.3% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 3.5% yoy to 3.3% yoy, below expectation of 3.4% yoy. Core CPI reading was the lowest since September 2021.

CPI goods annual rate rose from -1.4% yoy to negative 0.6% yoy. CPI services annual rate fell from 5.7% yoy to 5.2% yoy.

On a monthly basis, CPI fell by -0.2% mom.

RBNZ surprises with rate cut, signals another reduction this year

In an unexpected move, RBNZ lowered its Official Cash Rate by 25bps to 5.25% today, catching markets off guard. The central bank also unveiled new economic projections, which indicate the possibility of another rate cut later this year, followed by a total of 100bps in cuts throughout 2025.

RBNZ emphasized that the "pace of further easing" will hinge on confidence that pricing behavior remains aligned with a low-inflation environment and that inflation expectations stay anchored around the 2% target.

The minutes of the meeting reveal that "recent indicators give confidence that inflation will return sustainably to target within a reasonable time frame." The Committee agreed that with headline CPI inflation expected to return to the target band by the September quarter and growing excess capacity supporting a continued decline in domestic inflation, there was room to "temper the extent of monetary policy restraint."

The new economic projections suggest that OCR could drop further to 4.9% by Q4 2024, 3.8% by the end of 2025, and eventually reach 3.0% by mid-2027. Annual CPI inflation is forecasted to hover between 2.2% and 2.4% before settling at 2.0% by Q2 2026.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0938; (P) 1.0969; (R1) 1.1024; More.....

EUR/USD's break of 1.1007 confirms resumption of whole rally from 1.0665. Intraday bias is staying on the upside for 100% projection of 1.0665 to 1.0947 from 1.0776 at 1.1058. Decisive break there could prompt upside acceleration through 1.1138 resistance to 161.8% projection at 1.1232. On the downside, below 1.0985 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 1.0880 support holds.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern that's could still extend. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). However, break of 1.0776 support will extend the correction with another falling leg back towards 1.0447 support.

Economic Indicators Update

US CPI rose 0.2% mom in July, matched expectations. CPI core (all items less food and energy) rose 0.2% mom, matched expectations. Energy prices were unchanged over the month while food prices increased 0.2% mom.

For the 12-month period, CPI slowed from 3.0% yoy to 2.9% yoy, below expectation of 3.0% yoy. Headline CPI reading was the lowest since March 2021. CPI core slowed from 3.3% yoy to 3.2% yoy, matched expectations. CPI core reading was the lowest since April 2021. Energy prices rose 1.1% yoy while food prices rose 2.2% yoy.

Full US CPI release here.

Market Picture

The cryptocurrency market added 2.2% in the last 24 hours to reach $2.14 trillion, a fresh attempt to climb into the upper half of last month’s trading range from where last week’s sell-off was intensified. Over the past 24 hours, the macroeconomic background has been favourable for risk appetite thanks to slowing producer prices and New Zealand’s key rate cut.

Bitcoin remains at arm’s length from the $61K level, continuing to test the 50-day moving average and adding 2.5% in 24 hours. We assume a high correlation between Bitcoin, the entire crypto market and the dynamics of the stock market. Data supporting the Fed’s imminent easing of monetary policy may encourage the bulls to overcome the short-term downtrend and give the green light to rise all the way to $66K. Nevertheless, a new sell-off momentum is still the prevailing scenario, with a potential pullback to $55K.

With Ethereum as an example, we can see how ETFs perform in the early stages. The coin is recovering better than other altcoins, adding 2.8% on the day to $2730. ETHUSD is vulnerable to equities sell-offs but benefits more from inclusion in portfolios of investment managers seeking broad diversification.

News Background

BRN is cautious about Bitcoin’s outlook and recommends using the pullback to increase positions gradually. Volatility will continue in August and September, with BTC fluctuating between $49K and $69K.

Bitcoin may leave the established corridor due to the upcoming Fed rate cut and the US election, FalconX believes. A sustained rally in altcoins will require improved liquidity narratives and trends, as well as the removal of potential selling pressure from early investors.

The US SEC accused NovaTech’s founders and promoters of organising a Ponzi scheme that raised more than $650 million in crypto assets from more than 200,000 investors worldwide.

Japanese public company Metaplanet announced the purchase of 57.1 BTC for 500 million yen (~$3.3 million), bringing the company’s total Bitcoin holdings to 303,095 BTC ($18 million).

As noted by Arkham, Custodian BitGo moved 33,140.4 BTC (~$1.97 billion) related to the collapsed Mt. Gox. It is the last of five platforms working with a trustee to distribute funds to creditors. The addresses of the collapsed platform still hold 46,164 BTC worth $2.75 billion.

The liquidators of cryptocurrency hedge fund Three Arrows Capital (3AC) have demanded at least $1.3 billion from Terraform Labs, the company behind the Terra ecosystem. One of the industry’s most prominent hedge funds collapsed shortly after Terra and several other major crypto companies collapsed in 2022.

AUDUSD remains constructive and consolidating Tuesday’s 0.80% advance, as this morning’s RBNZ rate cut by 25 basis points negatively impacted Aussie dollar, but dips were limited, due to strong near-term bullish sentiment on revived risk appetite.

Technical studies are bullish on daily chart (rising positive momentum / MA’s turning to bullish setup) with strong bullish signals generated on close above converged 100/200DMA and penetration and close within rising daily cloud.

On the other hand, overbought conditions may further weigh on bulls, as markets await release of key US inflation data.

AUDUSD would benefit if CPI numbers fall below expectations, with extension towards targets at 0.6680 (daily cloud top) and 0.6692 (Fibo 76.4% of 0.6798/0.6348) in bullish scenario.

Conversely, above expectations July CPI would deflate AUD and risk extension through initial supports at 0.6613/0.6596 zone (daily cloud base / converged 100/200DMA’s).

Res: 0.6642; 0.6680; 0.6692; 0.6714.
Sup: 0.6613; 0.6596; 0.6573; 0.6555.

USD/JPY has retreated from its peak this week, settling at 146.82. The yen gained some strength as the US dollar weakened following July's lacklustre US Producer Price Index (PPI) data. This report bolstered market expectations for a potential 50 basis point cut by the Federal Reserve at its upcoming September meeting.

The focus now shifts to the July US Consumer Price Index (CPI), due for release today. Market participants predict sharp reactions if the data is weaker than expected, reinforcing the case for further rate cuts.

Domestically, the Tankan report indicated a decline in business confidence in Japan in August, likely influenced by reduced demand from China and other external pressures. This decrease to 10 points from 11 reflects Japan's broader economic challenges.

Additionally, the Bank of Japan’s (BoJ) monetary policy outlook remains a critical focal point amid recent stock market volatility and decreased carry trade activities involving the yen. While a former BoJ official expressed doubts about the possibility of an interest rate increase this year due to financial market impacts, the broader market remains cautiously optimistic about future monetary tightening.

Technical Analysis of USD/JPY

The USD/JPY is currently consolidating around the 147.00 level. We anticipate a corrective decline to 145.00, followed by a potential rebound towards 152.22. A breach of this level could extend the upward trend towards 159.52. This bullish outlook is technically supported by the MACD indicator, which, although its signal line is below zero, suggests downward momentum.

On the hourly chart, USD/JPY continues its corrective phase with a target set at 145.80. The pair is currently stabilising around 146.55, setting the stage for a potential decline to 145.60, and possibly extending the correction to 145.00. This scenario is corroborated by the Stochastic oscillator, with its signal line poised to move from below the 80 level to the 20 level, suggesting potential further declines.

Cable fell 0.35% in immediate reaction to softer than expected UK inflation numbers in July.

Although the BoE expected inflationary pressure to rise after CPI stayed at 2% target in past two months, weaker than expected July figure adds to expectations for more rate cuts that deflated sterling.

Fresh dip emerged after repeated failure to clear Fibo resistance at 1.2854 (50% of 1.3044/1.2664, reinforced by daily Kijun-sen), although facing increased headwinds from supports at 1.2825/09 (20DMA / broken Fibo 38.2%).

Firm break of these levels to generate fresh bearish signal and open way for deeper pullback.

Overbought Stochastic and rising 14-d momentum still in the negative territory support the notion, though positive signals from MA’s in bullish setup and rising daily cloud underpinning the action, partially offset downside threats.

Look for stronger direction signals on breach of 1.2800 support zone (negative) or lift above upper pivots at 1.2854/70 (positive).

All eyes are on US July inflation report (due later today) which is expected to shed more light on Fed’s next steps on monetary policy.

Annualized CPI is expected to remain at 3% in July, while monthly inflation and core figure (excluding the most volatile components) I s expected to tick higher.

Markets may show stronger reaction on any divergence of July figure from forecasted levels, while less volatility could be expected if CPI comes overall in line with expectations.

Res: 1.2854; 1.2870; 1.2899; 1.2954.
Sup: 1.2826; 1.2809; 1.2768; 1.2734.

Eurozone industrial production fell -0.1% mom in June, much worse than expectation of 0.4% mom rise. Industrial production increased by 0.7% for intermediate goods, 1.9% for energy, 0.9% for capital goods, and 3.8% for durable consumer goods. Production decreased by -2.5% for non-durable consumer goods.

EU industrial production fell -0.1% mom. Among Member States for which data are available, the largest monthly decreases were recorded in Ireland (-7.8%), Belgium (-6.5%), Croatia and Portugal (both -3.7%). The highest increases were observed in Romania (+4.0%), Finland (+3.6%) and Slovakia (+2.1%).

Full Eurozone industrial production release here.

• NZDUSD had been in a recovery mode since early August
• But 200-day SMA rejects advance after dovish RBNZ meeting
• Oscillators deteriorate, yet remain neutral-to-positive

NZDUSD had been steadily regaining ground since the beginning of the month after finding its footing near the previous 2024 low of 0.5851 registered in April. However, the rebound paused at the 200-day simple moving average (SMA), with the bears getting aided by a dovish RBNZ rate decision on Tuesday.

Should the recent spike to the downside translate into a reversal, initial support could be found at 0.5972, which is the 23.6% Fibonacci retracement of the 0.6368-0.5851 downleg. Failing to halt there, the pair could descend towards the April support of 0.5938. A violation of that zone could pave the way for the 2024 bottom of 0.5848, a hurdle that held strong both in April and August.

Alternatively, bullish actions could send the price to test the 38.2% Fibo of 0.6048 ahead of its 50- and 200-day SMAs. Conquering the latter, the bulls may attack the 50.0% Fibo of 0.6109. Even higher, further advances could cease around the 61.8% Fibo of 0.6170.

In brief, the RBNZ cut rates by 25 basis points and communicated that they even considered a 50 bps reduction, applying the brakes on NZDUSD’s steep recovery. Hence, a decisive break above the 200-day SMA is needed for the bulls to regain confidence for a full-scale recovery.

• USDJPY continues to hover around the 146 area
• Market participants are preparing for the US CPI release
• Momentum indicators remain mixed

USDJPY continues to trade sideways, hovering around the 146.65-147.71 area for the fifth consecutive session. The bears are holding most of the gains of the sizeable correction from the early July high of 161.94, but have failed to take advantage of USD’s recent underperformance.

With traders digesting the overnight news of the Japanese PM Kichida’s resignation, the focus is gradually turning to today’s US CPI report. This data could play a key role in provoking a dovish shift from the Fed at the imminent Jackson Hole Symposium and thus confirm expectations for a rate cut in September.

In the meantime, the momentum indicators are mixed. Specifically, despite the recent small upleg in USDJPY, the RSI remains below its midpoint and thus reveals a decent bearish pressure in USDJPY. Interestingly, the Average Directional Movement Index (ADX) continues to hover above its 25 threshold, pointing to a muted bearish trend in USDJPY. More importantly, the stochastic oscillator has managed to climb above its overbought area (OB), but it has probably run out of fuel as it is now trading sideways.

Should the bears remain confident, they could firstly try to push USDJPY below the 146.65-147.17 area, which is populated but the 78.6% Fibonacci retracement of the October 21, 2022 - January 16, 2023 downtrend and the August 11, 1998 high. They could then stage another sell-off towards the 144.99 level and gradually prepare for a retest of the 61.8% Fibonacci retracement at 142.49.

On the flip side, the bulls are desperately looking for another small upleg above the 146.65-147.71 area. They could lead USDJPY higher towards the October 3, 2023 high at 150.15, with the next plausible target being the busy 151.45-151.94 area.

To sum up, the relative calmness in USDJPY might not last as the market is preparing for some key US data releases.

Daily Pivots: (S1) 187.81; (P) 188.67; (R1) 189.74; More...

Intraday bias in GBP/JPY remains neutral for the moment. Outlook remains bearish with 38.2% retracement of 208.09 to 180.00 at 190.73 intact. On the downside, below 186.46 minor support will turn intraday bias back to the downside for retesting 180.00 low. Break there will resume the fall from 208.90 to 178.32 support next. However, firm break of 190.73 will extend the rebound to 61.8% retracement at 197.35, even as a corrective move.

In the bigger picture, fall from 208.09 medium term top is seen as correcting the up trend from 123.94 (2020 low). Deeper decline is in favor as long as 55 W EMA (now at 189.18) holds. But strong support could emerge between 178.32 and 38.2% retracement of 123.94 to 208.09 at 175.94 to bring rebound. Meanwhile, sustained trading above 55 W EMA will suggest that the range for the medium term corrective pattern is already set.