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New Zealand's CPI for Q2 rose by 0.4% qoq, down from previous quarter's 0.6% qoq and missing the expected 0.5% qoq.

Tradeable inflation, which includes goods and services that are subject to international competition, fell by -0.5% qoq, an improvement from previous -0.7% qoq. Conversely, non-tradeable inflation, covering domestic goods and services, rose by 0.9% qoq, down from prior 1.6% qoq.

Over the past 12 months, CPI growth rate slowed from 4.0% yoy to 3.3% yoy, falling short of anticipated 3.5% yoy. This marks the lowest level since Q2 2021 but remains slightly above RBNZ's target band of 1-3%.

Tradeable inflation saw a significant decline from 1.6% yoy to 0.3% yoy, reflecting lower imported inflationary pressures. Non-tradeable inflation also eased, dropping from 5.8% yoy to 5.4% yoy, indicating some cooling in domestic price pressures.

Full New Zealand CPI release here.

IMF chief economist Pierre-Olivier Gourinchas stated in a Reuters interview that Fed can afford to "wait a little bit" before lowering interest rates. He expected that one Fed rate cut is likely this year but refrained from specifying the timing.

Gourinchas noted that the IMF expects US inflation to reach Fed's 2% target in the first half of 2025, ahead of Fed's internal projection of 2026. This suggests that there would not be an "extended period" before rate cuts become appropriate.

Key Highlights

• Bitcoin price rallied above the $62,000 and $64,500 resistance levels.
• BTC is trading above a key bullish trend line with support at $61,550 on the 4-hour chart.
• Gold bulls are eyeing more upsides above the $2,480 level.
• USD/JPY is consolidating losses above the 157.50 support.

Bitcoin Price Technical Analysis

Bitcoin price started a steady increase after it cleared the $60,000 hurdle. BTC/USD broke a few important resistances near the $63,000 level to enter a positive zone.

Looking at the 4-hour chart, the price settled well above the $64,000 zone, the 100 simple moving average (red, 4 hours), and the 200 simple moving average (green, 4 hours). The bulls even pushed the price toward the $66,000 resistance zone.

The price is now consolidating gains and facing heavy resistance near the $66,000 zone. A successful close above $66,000 might start another steady increase. In the stated case, the price may perhaps rise toward the $67,500 level.

Conversely, Bitcoin might start a downside correction. Immediate support is near the $62,400 level and the 200 simple moving average (green, 4 hours). The next key support sits at $61,500. There is also a key bullish trend line forming with support at $61,550 on the 4-hour chart.

A downside break below the trend line might send Bitcoin toward the 100 simple moving average (red, 4 hours) at $59,000. Any more losses might send the price toward the $58,000 support zone.

Looking at Gold, the bulls seem to be in action and they might soon aim for more gains above the $2,480 resistance level.

Today’s Economic Releases

• US Housing Starts for June 2024 (MoM) – Forecast 1.310M, versus 1.277M previous.
• US Building Permits for June 2024 (MoM) – Forecast 1.390M, versus 1.399M previous.
• US Industrial Production for June 2024 (MoM) – Forecast 0.3%, versus 0.9% previous.

In a speech overnight, Fed Governor Adriana Kugler noted that despite "a few bumps" earlier in the year, inflation has "continued to trend down" across "all price categories."

She mentioned that supply and demand are "gradually coming into better balance," with supply bottlenecks easing and demand moderating due to high interest rates and the depletion of households' excess savings.

Kugler also pointed out that the labor market has seen "substantial rebalancing," with nominal wage growth moderating. This trend suggests that inflation will continue moving toward Fed's 2% target.

Kugler indicated that if economic conditions continue to evolve favorably, with more rapid disinflation and resilient employment, "it will be appropriate to begin easing monetary policy later this year." However, she stressed that her approach will remain data-dependent.

She added that if the labor market cools too much and unemployment rises due to layoffs, it might be necessary to cut rates "sooner rather than later." On the other hand, if data do not confirm that inflation is moving sustainably toward 2%, it may be appropriate to "hold rates steady for a little longer."

Full speech of Fed's Kugler here.

• Gold prices reach a new record high of $2465/oz, driven by post-CPI and rate cut optimism.
• Despite a resurgent US Dollar, gold’s upward momentum remains strong, briefly dipping before rallying to new highs.
• June’s US retail sales figures and an upward revision of May’s data had minimal impact on gold’s rally and market expectations for Fed rate cuts.

Gold prices continue to ride the wave of post-CPI and rate cut optimism as the precious metal nears its previous all-time high around the $2450/oz mark.

This surge comes despite a resurgent US Dollar index, bolstered by recent events and positive US retail sales data. Initially, the strength in the US Dollar index seemed poised to cap gold prices, but this pressure failed to materialize. Gold briefly dipped to a low of $2429.45 before rallying to fresh daily highs at $2458.05.

June’s US retail sales numbers remained unchanged, but an upward revision of May’s figure to 0.3% temporarily paused gold’s rally. Nonetheless, the report did little to alter market expectations regarding Fed rate cuts, even as the US Dollar gained some strength.

Source: Refinitiv

The overall probability of a September rate cut has seen a slight increase, rising from 91.9% to 93.3%. Meanwhile, the DXY has rebounded from support at the 104.00 level but is currently facing resistance at the 200-day moving average, which stands at 104.42.

US Dollar Index Chart, July 16, 2024

Source: TradingView (click to enlarge)

The Week Ahead: Fed Policymakers to Push Back on Rate Cut Bets?

The economic calendar for the upcoming week is light on high-impact US economic data. The main focus will be on Federal Reserve speakers, with several policymakers scheduled to address the public in the coming days.

For the US Dollar to sustain its recovery following last week’s selloff, Fed policymakers will need to adopt a distinctly hawkish tone.

In contrast, gold appears to be on an unstoppable upward trajectory. With minimal price action to analyze, it is challenging to predict where this rally might encounter resistance.

Technical Analysis

From a technical standpoint, Gold is now in uncharted territory. The break above previous all-time highs at $2450/oz makes that a key level of support.

If the $2450/oz continues to hold then further gains are the most likely outcome. Psychological and round numbers are always key for Gold so keep a watch on $2475 and of course the psychological $2500/oz handles.

Alternatively, a break below $2450 brings $2432 support into focus before the psychological $2400 maybe revisited once more.

Support

• 2450
• 2432
• 2400

Resistance

• 2475
• 2500

XAU/USD Daily Chart, July 16, 2024

Source: TradingView.com (click to enlarge)

• EURJPY reversed from pivotal support level 171.35
• Likely to rise to resistance level 175.40

EURJPY currency pair recently reversed up from the pivotal support level 171.35, which has been reversing the price from the end of April.

The support level 171.35 was strengthened by the nearby 50 % Fibonacci correction of the previous sharp upward impulse from last month.

Given the strong daily uptrend, EURJPY currency pair can be expected to rise further to the next resistance level 175.40 (which reversed the price earlier this month).

• WTI broke support level 80.00
• Likely to fall to support level 78.00

WTI crude oil just broke the round support level 80.00, former resistance from May, which has been reversing the price from June.

The breakout of the support level 80.00 coincided with the breakout of the 38.2% Fibonacci correction of the previous upward impulse wave i from the start of June.

WTI crude oil can be expected to fall further to the next support level 78.00 (former minor support from the middle of June).

• Gold gains around 18% year-to-date
• But is it time for the uptrend to cool down a bit?
• Even if so, the broader outlook remains positive

Gold shines bright

Gold had a great year-to-date performance, gaining around 18% and hitting a record high of 2450 on May 20. As discussed in previous reports, gold’s uptrend was fueled by geopolitical uncertainty, continued central bank buying and strong consumer demand, especially in China, as well as expectations of lower borrowing costs, at least in most developed nations.

But will those forces remain intact? Will gold extend its prevailing uptrend without looking back, or has the momentum run out of steam?

Overly dovish Fed rate cut bets

After hitting a fresh record high on May 20 at around 2450, the precious metal pulled back to settle within the sideways range between 2290 and 2390, which contained most of the price action since the beginning of April. Perhaps this was due to the People’s Bank of China not purchasing any gold in May and June.

That said, just last week, the metal found its footing again and emerged above the upper bound of that range as the US CPI data revealed that inflation continued to cool in June. Coming on top of the soft employment data for the month, the CPI numbers cemented expectations of a September quarter-point cut by the Fed, with market participants increasing the basis points expected to be cut by the end of the year to 68. This translates into an around 70% chance for a third 25bps reduction before the turn of the year.

However, betting on a third rate cut this year may not be that realistic. After all, the Fed’s latest dot plot has pointed to just one, while Powell, although confident about the progress of inflation, stressed that they need more evidence before they consider starting to lower rates.

What’s more, following the assassination attempt on US Presidential candidate Trump, the chances of him returning to the oval office may have increased and a Trump presidency may not be rate-cut friendly as his pledges to lower corporate taxes and add tariffs on China could very well prove inflationary.

All in all, incoming data pointing to some stickiness in inflation or better-than-expected economic performance could allow the dollar to rebound, and thereby weigh on gold, as investors reconsider the chance of a third rate cut this year.

Slowing Chinese demand

Besides the pause in PBoC’s purchases and the upside risks in Fed rate cut expectations, what could also weigh on the precious metal’s momentum in the short term may be more progress in the Israel-Hamas ceasefire talks and the slowdown in retail demand in China.

In the absence of any other investment vehicle to profit from, during the last couple of years, Chinese retailers rushed into gold, and this was evident by the acceleration in Chinese prices compared to international prices. However, lately, international prices have been rising faster than the Shanghai benchmark prices, implying a slowdown in Chinese demand.

Any correction may be short-lived

Having said that though, any potential correction due to the aforementioned risks is likely to prove limited and short lived. As it was highlighted several times in previous reports, delayed rate cuts may not be much of a concern for gold investors as their horizons are likely longer than those of forex traders. The fact that the Fed is seen beginning an easing cycle soon may be more than enough as it keeps the upside potential in Treasury yields limited.

Moreover, the PBoC may reaccelerate its purchases over the next few months leading up to the US elections in November, as a Trump victory carries the risk of worsening US-China relations. Thus, Chinese policymakers may continue eliminating their dollar dependency to minimize the economic damage in case the US decides to weaponize its own currency.

As far as retail demand is concerned, with the Chinese stock market pulling back again lately and cryptos banned in the world’s second largest economy, many investors may soon decide to return to the precious metal.

A still-bullish technical picture

From a technical perspective, gold reclaimed its shine after the lower-than-expected US CPI data, breaking above the key resistance (now turned into support) barrier of $2,390.

Now, the metal seems to be headed towards its all-time high of $2,450, but even if the bulls overtake that zone soon, a retreat could still be possible. After all this was the case during the last couple of times the metal hit records. Having said all that though, any retreat could stay limited above the key area of $2,390, from where the bulls may jump back into the action.

• ECB meets with near zero chances for a rate cut
• ECB members continue to disagree about the rates outlook
• A dovish shift looks unlikely as the focus rests with the Fed
• Euro showing unexpected strength despite political unrest

ECB meets but all eyes remain on the US

The ECB is preparing for the last meeting before the summer lull with developments elsewhere making President Lagarde’s job even more challenging. While the world is still digesting last week’s weaker US CPI report, the weekend’s attack on US presidential candidate Donald Trump and the collapse of the rumoured Israeli-Hamas truce, ECB members are scheduled to debate on the progress made since the June 6 gathering.

Euro area economy is suffering from political unrest

Since early June, the euro area economy appears to be losing momentum. The most recent set of PMI surveys along with the German IFO and ZEW surveys confirm this situation as the economy appears to have been burdened by the latest political developments in the two eurozone heavyweights, Germany and France. The former’s outlook is clouded by the budget shenanigans with the next federal election just 14 months away, while the latter continue the search for a new prime minister, with a caretaker government in place at the moment to ensure the smooth hosting of the Summer Olympics.

Economy is weaker but Lagarde’s main problem is the ECB hawks

Despite the continued stickiness in inflation, based on the recent data prints, a July rate cut would have been the baseline scenario for this meeting, if the ECB hadn’t rushed into cutting in June. However, President Lagarde was probably too eager to start easing the ECB’s monetary policy stance and she possibly mishandled the June rate decision. The hawks were forced to agree to a 25bps rate cut to save ECB’s face, but they continue to feel betrayed.

The minutes from the June gathering were quite telling about the behind-the-door discussions. As a result, the bar for another rate cut has increased substantially since then. ECB hawks are looking for stronger evidence that inflation will converge to the 2% target by 2025, especially as wage growth remains potent. Until their confidence about the inflation outlook increases considerably, they are unlikely to support any rate moves.

What does this mean for Thursday's meeting?

The market does not expect a surprise interest rate change on Thursday. It is probably too early for another rate cut, considering the volatile conditions both in the euro area and abroad, with the ECB doves possibly deciding to shift their focus to September. However, with the market pricing in an 80% probability for a September rate cut, could Thursday’s meeting lay the groundwork for such a move?

This looks somewhat unlikely at this stage. At the scheduled press conference, President Lagarde could emphasize the loss of economic momentum, but the stickiness in inflation, especially in the services sector, the strong wage growth and the external environment would probably stop her from making a dovish shift. For the sake of cohesion within the Governing Council, Lagarde might deem it necessary to strike a more balanced approach at the press conference.

More importantly, ECB hawks have been quite clear that they will not tolerate any pre-commitment talk and that the ECB should be truly data dependent. This sounds sensible considering the next ECB meeting will come in two months, on September 12, and by then the Fed’s rate cut intentions would probably be much clearer.

Could the euro benefit from the lack of a dovish shift?

The euro has taken advantage of the widespread US dollar weakness, which has been suffering due to the increased chances for a September rate cut, erasing the recent correction and now testing the early June highs. Technically, the continued convergence of the simple moving averages points to higher volatility going forward, which could be triggered by Thursday’s ECB meeting.

Since the market is fixated on a September ECB rate cut, a dovish shift on Thursday could play into its hand and hence cause euro/dollar to surrender part of its recent gains. Interestingly, a hawkish show on Thursday could largely be ignored as the market will probably see this response as a strategic move from President Lagarde to please the hawks, and not a realistic shift to a more hawkish stance.