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Canada's CPI slowed from 2.9% yoy to 2.7% yoy in June. The deceleration was largely the result of slower year-over-year growth in gasoline prices, which rose 0.4% in June following a 5.6% increase in May. Excluding gasoline, the CPI rose 2.8% yoy.

Looking at the core measures, CPI median fell from 2.7% yoy to 2.6% yoy. CPI trimmed was unchanged at 2.9% yoy. CPI common slowed from 2.4% yoy to 2.3% yoy.

On a monthly basis, CPI fell -0.1% mom in June, following a 0.6% mom increase in May. The monthly decrease was driven by lower prices for travel tours (-11.1%) and gasoline (-3.1%).

Full Canada CPI release here.

US retail sales was steady mom at USD 704.3B in June, above expectation of -0.20% mom. Ex-auto sales rose 0.4% mom to USD 573.6B, above expectation of 0.1% mom. Ex-gasoline sales rose 0.2% mom to USD 652.4B. Ex-auto and gasoline sales rose 0.8% mom to USD 507.1B.

Total sales for the April through June period were up 2.5% from the same period a year ago.

Full US retail sales release here.

USDJPY remains in extended consolidation of last week’s sharp fall, sparked by US inflation data and intervention by Japanese authorities.

Near-term action is holding above 55DMA (157.55) which repeatedly contained dips and marks solid support for now.

Traders also take a breather, awaiting fresh signals from US retail sales, due today, which may further deflate dollar if June numbers miss forecasts, as Further intervention could be expected in such scenario.

Weaker daily studies add to potential bearish outlook, with firm break of 55DMA pivot to expose targets at 154.98 (100DMA) and 154.54 (June 4 higher low) and risk further losses on violation of the latter.

Converged 5/30DMA’s mark initial resistance (159.03), guarding upper pivot at 160.05 (converged 10/20DMA’s.

Res: 159.53; 160.05; 160.25; 161.80.
Sup: 157.55; 156.83; 155.71; 154.98.

• GBP/USD struggles to break above the 1.3000 level despite softer US data and a dovish comment from Fed Chair Powell.
• UK inflation data will be crucial in determining whether GBP/USD can break above 1.3000.
• Technical analysis suggests GBP/USD may struggle to break above 1.3000 due to option barriers and overbought RSI.

Cable is hovering just below the psychological 1.3000 level, with Fed Chair Powell’s remarks at the Economic Club of Washington yesterday failing to spark momentum.

The US Dollar gained slightly amid political uncertainty in the US and the Republican nomination announcement. Markets do seem to be buoyed by the prospect of a Trump Presidency providing support to the US Dollar and long dated Treasury yields.

Currency Strength Meter, July 16, 2024

Source: FinancialJuice (click to enlarge)

Last week’s rally in GBP/USD was driven by softer US data, particularly the US inflation report. During his speech at the Economic Club yesterday, Fed Chair Powell maintained a largely neutral stance but made one notably dovish comment. He mentioned that the Fed had been waiting for additional confirmation that inflation was on the right track in Q1, which did not materialize. However, he noted that the three readings in the second quarter and one from last week have added some confidence.

Powell’s comments regarding last week’s data may partly explain the US Dollar’s resilience and Cable’s hesitation near a significant psychological level.

The Week Ahead: US Retail Sales, UK Inflation and Employment Data Ahead

The economic calendar for the upcoming week is packed with high-impact UK data releases. UK inflation data is of particular importance, as the Bank of England’s 2% target was met in the June 19 release. Market participants are keen to see if inflation can maintain this level, especially amid rumors of a potential uptick in UK inflation during the second half of 2024.

If the inflation rate hovers around or below the 2% year-over-year mark, sterling’s momentum could stall, preventing GBP/USD from sustainably rising above the 1.3000 level. Conversely, any indication of increased inflation might serve as the catalyst to propel GBP/USD past this key psychological threshold.

US retail sales data is due later today, but it’s not typically a key market mover in my analysis. I anticipate any reactions to the retail sales data to be short-lived, potentially causing volatility without leading to sustained market movements.

Technical Analysis GBP/USD

Support

• 1.2950
• 1.2900
• 1.2850

Resistance

• 1.3000
• 1.3090
• 1.3250

GBP/USD Daily Chart, July 16, 2024

Source: TradingView.com (click to enlarge)

According to the EUR/USD chart, the euro to dollar exchange rate yesterday surpassed the peak from early June, rising above 1.092 – the last time the price was at this level was on March 21.

Bullish sentiments in the market were supported by:

→ Approaching Thursday's meeting of the European Central Bank – it is expected that interest rates will remain unchanged. However, attention will be focused on comments from its president Christine Lagarde regarding the timing of the next interest rate cut.

→ Expectations of rate cuts by the Federal Reserve in September. As Reuters reports, Powell stated yesterday that economic indicators in the US for the second quarter "to some extent bolster the confidence" that inflation is returning to the target level in a sustainable manner.

As we mentioned in our analytical review of the EUR/USD chart on July 1:

→ Against the backdrop of the French election results, the rate broke through consolidation figure A-B;

→ and could have reached the level of 1.08400.

In fact, this level (C) acted as resistance, holding bulls from July 5 to 11.

How might the situation develop further?

As today's technical analysis of the EUR/USD chart shows:

→ After surpassing the 1.092 level, the price retraced downwards. The inability of bulls to sustain above this level suggests that they may have exhausted after a rise from point A (+2.3% over half a month).

→ Assessing the peaks from July 11-15, it appears challenging for bulls to maintain the progress achieved. → It is possible that we are witnessing a false bullish breakthrough of the June high.

Currently, the price is holding within the ascending trend of July (shown by orange lines), the lower boundary of which could provide support. It is possible that bears could defend the 1.092 level and attempt to break below the lower boundary of the orange channel.

However, if this scenario unfolds, the fundamental background will be crucial – for example, news from the ECB on Thursday.

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Eurozone goods exports fell -0.5% yoy to EUR 241.5B in May. Goods imports fell -6.4% yoy to EUR 227.6B. Trade balance showed a EUR 13.9B surplus. Intra-Eurozone trade fell -5.6% yoy to EUR 216.0B.

In seasonally adjusted term, goods exports fell -2.6% mom to EUR 237.4B. Goods imports fell -0.1% mom to EUR 225.1B. Trade balance recorded EUR 12.3B surplus, smaller than expectation of EUR 20.3B. Intra-Eurozone trade fell -2.8% mom to EUR 210.4B.

Full Eurozone trade balance release here.

Germany ZEW Economic Sentiment fell from 47.5 to 41.8 in July, below expectation of 44.3. That's also the first decline in a year since July 2023. Current Situation Index rose from -73.8 to -68.9, above expectation of -73.0.

Eurozone ZEW Economic Sentiment fell from 51.3 to 43.7, below expectation of 50.2. Current Situation Index rose 2.5 pt to -36.1.

"The economic outlook is worsening. For the first time in a year, economic expectations for Germany are falling. The fact that German exports decreased more than expected in May, the political uncertainty in France and the lack of clarity regarding the future monetary policy by the ECB have contributed to this development," comments ZEW President Professor Achim Wambach.

Full German ZEW release here.

Gold prices have surged, reaching $2430 per troy ounce on Tuesday, flirting with historic highs. The recent spike in gold prices is largely attributed to comments made by Federal Reserve Chairman Jerome Powell, which have bolstered expectations of an impending interest rate cut.

In his latest address, Powell highlighted that recent U.S. economic indicators are encouraging, suggesting that inflation is moving towards the target. Importantly, he indicated that the Federal Reserve might initiate monetary easing before inflation strictly hits the 2% target mark.

Market anticipation for rate adjustments is palpable, with consensus almost fully expecting a rate cut as early as September, with a potential second cut before year-end. Such monetary policy adjustments typically bolster gold prices, making it an attractive investment in times of lower interest rates.

Concurrently, the political landscape in the U.S. could influence market dynamics. Increasing prospects of Donald Trump's success in the upcoming presidential race could strengthen the U.S. dollar and uplift Treasury yields, potentially tempering gold's rally.

Technical analysis of XAU/USD

The XAU/USD pair has recently executed a significant upward move to $2420.50 and is now oscillating within a consolidation range near this level. We might see an extension of this range up to $2444.44. Should this level be reached, a corrective pullback to $2350.50 could ensue. This scenario is technically supported by the MACD indicator, which shows a strong upward trend.

On the hourly chart, gold has breached the $2420.50 mark and is stabilizing above this threshold. We anticipate further growth towards $2444.44. Upon achieving this peak, a potential reversal towards $2350.50 may occur, marking the commencement of a bearish phase. The Stochastic oscillator, currently positioned above 80, suggests a downward adjustment is likely following the climb.

Investors and traders are advised to monitor these levels closely, especially in light of upcoming economic data and Fed communications which could further sway gold's price trajectory.

Gold price rose further in early Tuesday following more dovish tones from Fed Powell in his speech on Monday, which contributes to growing expectations that the Fed may soon decide to start cutting interest rates.

Powell pointed to the recent inflation data which boost optimism that inflation remains on track towards 2% target, fueling hopes for eventual start of policy easing.

Markets focus on release of US retail sales, due later today (June f/c -0.3% vs May 0.1%) with June numbers at/below expectations to add to rate cut narrative and further boost metal’s price.

Fresh rise came closer to new record high ($2450), though headwinds at this zone cannot be ruled out, due to significance of resistance and overbought daily studies, with limited dips (expected in unchanged positive environment for gold) to offer better levels to re-join bullish market.

Firm break of $2450 pivot to expose initial target at $2500, with stronger acceleration higher to be anticipated on break here.

Rising 10DMA ($2388) should contain and keep larger bulls intact.

Res: 2450; 2500; 2515; 2551.
Sup: 2420; 2400; 2388; 2366.

• USDJPY finds support near 158.00 after rapid downfall
• Short-term risk remains in the bearish zone; eyes on 155.00 level
• US retail sales due for release at 12:30 GMT

USDJPY set a strong foothold near its 50-day simple moving average at 157.90 after last week’s brutal exit out of the 161.00 territory. Note that the pair made a double top pattern near its 38-year high of 161.94 before descending, which typically indicates a bearish continuation.

Despite the recent crash in the price, the series of higher lows is still consistent in the medium-term picture and only a decisive close below the 155.00 mark would shift the outlook to bearish and squeeze the price to 153.60. In the meantime, the 156.53 region, where a former descending trendline is located, could delay any continuation lower.

Technically, the RSI and the MACD are not in favor of the bulls. The former hit a new low below its 50 neutral mark despite showing some recovery today, while the latter continues to lose momentum below its red signal line. Likewise, the stochastic oscillator remains negatively charged, though it’s a short distance from its 20 oversold level, suggesting that selling forces might soon lose steam.

In the bullish scenario, if the pair closes above 158.77, buying appetite could grow towards the 20-day SMA, which is currently flattening around April’s peak of 160.20.  Then, the pair should pierce through the 160.85-161.94 constraining zone to reach the 164.43 caution region.

In summary, USDJPY could continue to face bearish pressure after its significant drop, but there is potential for bullish activity if the price remains above 155.00.