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Following the release of data indicating a steeper than anticipated slowdown in inflation, Dollar saw a marked decline last week, securing its position as the week's most significant loser in the currency markets. Concurrently, surge in stocks and tumble in benchmark treasury yields accompanied Dollar's descent.

At this juncture, it remains too premature to determine whether Fed will conclude its tightening cycle following this month's anticipated rate hike, or if another increase will be on the horizon within the year. Regardless of the outcome, it is expected that Dollar will continue to face pressure in the short term while investors wait for clarity on inflation and rate outlooks.

Elsewhere in the currency markets, Canadian Dollar trailed behind the US counterpart as the second-worst performer for the week. This dip is attributed to speculation that the last week's rate hike might mark the end of BoC's current tightening cycle.

Swiss Franc emerged as the champion of the week, outpacing Yen, which has been consolidating its recent gains. The vigorous rally of Franc in European crosses exerted downward pressure on both Euro and Sterling.

Meanwhile, New Zealand Dollar put on an impressive performance, securing its place as the second strongest currency for the week. Australian Dollar, on the other hand, delivered a mixed performance, failing to rally alongside its trans-Tasman neighbor.

Two Fed hikes still on the cards?

Last week's release of the US June CPI and PPI reports sparked enthusiasm among global investors, leading to rallies in major stock indexes while pushing down benchmark yields and hammering Dollar. Market consensus was unchanged on a 25 bps hike by Fed this month, with over a 90% chance priced in throughout the week. Traders did try to price out an additional hike this year.

However, this sentiment started shifting towards the end of the week, particularly after the speech by Fed Governor Christopher Waller. He insisted that two additional 25 bps rate hikes are still necessary this year to steer inflation back towards target.

More importantly, Waller highlighted the fact that monthly reading of core CPI was at 0.4% mom or higher for five consecutive months before it halved to 0.2% mom in June. And, "one data point does not make a trend". Additionally, he also drew attention to how inflation had "briefly slowed" in the summer of 2021 before escalating again.

source: tradingeconomics.com

Waller's comments suggest that Fed officials are now scrutinizing monthly reading of core CPI more closely to determine the need for further tightening. This is primarily due to the annual readings being significantly influenced by base effects.

Meanwhile, the outlook depicted by fed fund futures is rather puzzling. By the end of the week, markets were pricing in 93.0% chance of a 25bps hike to 5.25-5.50%, which aligns with expectations.

But post-September, predictions become murkier: there's 59.6% chance of another 25bps hike to 5.50-5.75% in November, followed by 79.1% chance of a rate cut back to 5.25-5.00% in December, with 57.4% chance of another cut in January to 5.00-5.52%.

Given the high degree of uncertainty beyond July, it's not necessary to dwell too much on these predictions for now. After all, both Fed and markets need some more time to make sense of the evolving inflation landscape.

Dollar index resumed down trend, 98 to provide enough support?

Dollar index nose-dived through 100 handle last week, in tandem with strong rally in stocks and steep pull back in benchmark yields. The development confirmed resumption of whole down trend from 114.77 (2022 high). Near term outlook will now stay bearish as long as 101.92 support turned resistance holds, even in case of strong recovery.

For now, the fall from 114.77 is still seen as a corrective move only. Strong support is likely at around 98 handle to contain downside to bring a sustainable bounce or even reversal. There is 61.8% retracement of 89.20 (2021 low) to 114.77 at 98.96. 55 M EMA currently sits around 98.06. Even if DXY is correcting the up trend from 70.69 (2008 low), there is 38.2% retracement of 70.69 to 114.77 at 97.93. However, that would very much depends on the case that risk markets are only in a "bear market rally" for now.

S&P 500 extended rally, but pay attention to loss of momentum

Taking about risk markets, S&P 500 extended recent rally to close at 4505.42 last week. Near term outlook will remain bullish as long as 4328.08 support holds. Next target is 138.2% projection of 3491.58 to 4100.51 from 3808.86 at 4650.40.

Nevertheless, for now, the rise from 3491.58 (2022 low) is only seen as the second leg of the long term corrective pattern from 4818.62 (2022 high), i.e. a bear-market rally. Hence, SPX should target to lose upside momentum ahead, with prospect of topping between 4650.40 and 4818.62. This development, if realized, would likely be in tandem with bottoming in Dollar index after next fall to 98 as mentioned above.

EUR/CAD rally extends, but should face resistance at 1.5111

Looking at other currencies, Canadian Dollar was the second worst despite BoC's rate hike last week. While markets are pricing in roughly 50% chance of one more hike by the end of the year, some economists believe that the peak rate was already reached. Even not, BoC would now be outpaced by other major central banks, BoE for sure, and probably ECB too.

EUR/CAD's strong accelerated higher last week as the rally from 1.4280 extended. Further rise is expected as long as 1.4651 support holds, to retest 1.5111. For now, the rebound from 1.4280 is seen as the second leg of the corrective pattern from 1.5111 high only. Hence, upside should be limited by 1.5111 to bring reversal, as the third leg of the pattern. Hence, attention will be paid on sign of loss of momentum ahead.

AUD/NZD extending near term fall

The fortune of Aussie and Kiwi diverged again last week, with the latter ending as the second best, while Aussie was just mixed. The appointment of current Depute RBA Governor Michelle Bullock as the next head of the central bank isn't expected to bring much difference or any discontinuity of current policy path. Meanwhile, other changes in the central bank are mostly nothing more than political gestures.

After outgoing Governor Philip Lowe was criticized for raising interest a historic "12 times in 15 months", the central bank will now cut the number of meetings from 11 times to 8 times a year. The post-meeting statement will be issued by the Board, rather than the Governor alone. The Board, rather than just the Governor, will be the signatory to the Statement on the Conduct of Monetary Policy.

Anyway, AUD/NZD's decline from 1.1050 resumed last week by breaking 1.0730 support. Rejection by 55 D EMA (now at 1.0825) is a near term bearish sign. Further fall is expected as long as 1.0828 resistance holds. Nevertheless, current decline is seen as either a correction to rise from 1.0556, or worse the third leg of the corrective pattern from 1.1085. Hence, while break of 1.0556 support cannot be totally ruled out, strong support should emerge above 1.0469 (2022 low). Break of 1.0828 resistance will be an early sign of near term bullish reversal.

USD/CHF Weekly Outlook

USD/CHF's decline from 1.0146 resumed last week and broke 0.8756 long term support decisively. But as a temporary low was formed at 0.8564 with subsequent recovery, initial bias is neutral this week for some consolidations first. Upside of recovery should be limited below 0.8818 support turned resistance to bring another fall. Break of 0.8564 will target 100% projection of 0.9439 to 0.8818 from 0.9146 at 0.8525 next.

In the bigger picture, the break of 0.8756 (2021 low) indicates break out from the long term range pattern. For now, medium term outlook will stay bearish as long as 0.9146 resistance holds. Further fall would be seen to 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317 next.

In the long term picture, there is no clear sign that down trend from 1.8305 (2000 high) has completed. With 38.2% retracement of 1.8305 to 0.7065 at 1.1359 intact, outlook is neutral at best. Sustained break of 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317 will bring retest of 0.7065 low.

EUR/USD's up trend resumed last week by breaking 1.1094 resistance decisively. Initial bias stays on the upside this week for 1.1273 fibonacci level. Firm break there will target 161.8% projection of 1.0634 to 1.1011 from 1.0832 at 1.1442 next. On the downside, below 1.1160 minor support will turn intraday bias neutral and bring consolidations first, before staging another rally.

In the bigger picture, as rise from 0.9534 extends, focus is now on 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next. Meanwhile, outlook will continue to stay bullish as long as 1.0832 support holds, even in case of deep pull back.

In the long term picture, focus stays on 55 M EMA (now at 1.1135). Rejection by this EMA will revive long term bearishness. However, sustained break above here will be affirm the case of long term bullish reversal and target 1.2348 resistance for confirmation.

USD/JPY's fall from 145.06 extended to as low as 137.22 last week, but recovered after breaching 137.90 resistance turned support briefly. Initial bias is turned neutral for consolidations first. Upside of recovery should be limited by 55 4H EMA (now at 140.80) and bring another decline. Sustained break of 137.90 will confirm the larger bearish case, and target 127.20 and below.

In the bigger picture, fall from 145.06 is seen as the third leg of the corrective pattern from 151.93 (2022 high). Sustained break of 137.90 resistance turned support should confirm this case and target 127.20 (2023 low) and below. For now, this will remain the favored case as long as 145.06 resistance holds, even in case of strong rebound.

In the long term picture, price action from 151.93 is seen as developing into a corrective pattern to up trend from 75.56 (2011 low). While deeper decline cannot be ruled out, downside should be contained by 38.2% retracement of 75.56 to 151.93 at 122.75.

GBP/USD's up trend from 1.0351 resumed last week and hit as high as 1.3141. But as a temporary top was formed with subsequent retreat, initial bias is turned neutral for consolidations first. Downside of retreat should be contained above 1.2847 resistance turned support to bring rise resumption. On the upside, break of 1.3141 will target 161.8% projection of 1.2306 to 1.2847 from 1.2589 at 1.3464 next.

In the bigger picture, rise from 1.0351 medium term bottom (2022 low) is in progress. Next target is 100% projection of 1.0351 to 1.2445 from 1.1801 at 1.3895. Break there will target 1.4248 key long term resistance (2021 high) next. This will now remain the favored case as long as 1.2678 resistance turned support holds.

In the long term picture, sustained trading above 55 M EMA (now at 1.2917) will add to the case of long term bullish reversal. Decisive break of 1.4248 cluster resistance (38.2% retracement of 2.1161 (2007 high) to 1.0351 at 1.4480) will confirm completion of whole down trend from 2.1161. Nevertheless, rejection by 1.4248/4480 will keep long term outlook neutral at best.

USD/CHF's decline from 1.0146 resumed last week and broke 0.8756 long term support decisively. But as a temporary low was formed at 0.8564 with subsequent recovery, initial bias is neutral this week for some consolidations first. Upside of recovery should be limited below 0.8818 support turned resistance to bring another fall. Break of 0.8564 will target 100% projection of 0.9439 to 0.8818 from 0.9146 at 0.8525 next.

In the bigger picture, the break of 0.8756 (2021 low) indicates break out from the long term range pattern. For now, medium term outlook will stay bearish as long as 0.9146 resistance holds. Further fall would be seen to 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317 next.

In the long term picture, there is no clear sign that down trend from 1.8305 (2000 high) has completed. With 38.2% retracement of 1.8305 to 0.7065 at 1.1359 intact, outlook is neutral at best. Sustained break of 61.8% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.8317 will bring retest of 0.7065 low.

AUD/USD's strong rebound last week suggests that rise from 0.6457 is still in progress. But as a temporary top was formed at 0.6894, initial bias is neutral this week first. Decisive break of 0.6898 resistance will firstly confirm resumption of rise from 0.6457. Secondly, that should also confirm completion of the fall from 0.7156 at 0.6457. Next target will be 100% projection of 0.6457 to 0.6898 from 0.6594 at 0.7035, and then 0.7156 resistance.

In the bigger picture, price actions from 0.7156 are seen as a correction to the rebound from 0.6169 (2022 low). Break of 0.6898 resistance will argue that rise from 0.6169 is ready to resume through 0.7156. Next target will be 100% projection of 0.6169 to 0.7156 from 0.6457 at 0.7444. For now, this will be the favored case as long as 55 D EMA (now at 0.6703) holds.

In the long term picture, fall from 0.8006 is seen as a corrective move to up rise from 0.5506 (2020 low). This correction could have completed at 0.6169. Sustained trading above 55 M EMA (now at 0.7088) will affirm this case, and indicate that rise from 0.5506 is ready to resume. However, firm break of 0.6169 will revive long term bearishness and turn focus back to 0.5506 low.

USD/CAD edged lower to 1.3091 last week but quickly recovered. Initial bias is turned neutral this week first. But outlook will remain bearish as long as 1.3386 resistance holds. Break of 1.3091 will resume larger decline to 61.8% projection of 1.3653 to 1.3115 from 1.3386 at 1.3054. However, firm break of 1.3386 will indicate near term reversal and turn outlook bullish.

In the bigger picture, price actions from 1.3976 are viewed as a correction to up trend from 1.2005 (2021 low) only. But even so, deeper decline is expected as long as 1.3386 resistance holds. Further fall could be seen to 61.8% retracement of 1.2005 to 1.3976 at 1.2758. Meanwhile, break of 1.3386 will be a sign that the correction has completed and bring stronger rally back to retest 1.3976.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only, which might have completed at 1.2005. That is, up trend from 0.9506 (2007 low) is expected to resume at a later stage. This will remain the favored case as 55 M EMA (now at 1.3048) holds.

GBP/JPY's strong rebound from 179.45 last week argues that pull back from 183.99 has completed. Initial bias is back on the upside for retesting 183.99 high first. Firm break there will resume larger up trend to 187.36 projection level. On the downside, however, break of 179.45 will extend the pull back to 55 D EMA (now at 176.68).

In the bigger picture, as long as 172.11 resistance turned support holds, up trend from 123.94 (2020 low) is expected to continue. On resumption, next target is 138.2% projection of 148.93 to 172.11 from 155.33 at 187.36, and then 195.86 (2015 high). Nevertheless, firm break of 172.11 will argue that larger correction is already underway.

In the longer term picture, rise from 122.75 (2016 low) in still in progress to retest 195.86 (2015 high). Based on current momentum, break of 195.86 is in favor. But strong resistance could still be seen from 61.8% retracement of 251.09 (2007 high) to 116.83 (2011 low) at 199.80 to limit upside on first attempt.

EUR/JPY's strong rebound from 153.32 last week argues that pull back from 157.99 has completed already. Initial bias is now mildly on the upside this week for retesting 157.99 first. Firm break there will resume larger up trend. On the downside, break of 153.32 will extend the pull back from 157.99 to 55 D EMA (now at 152.38) and possibly below.

In the bigger picture, as long as 151.60 resistance turned support holds, rise from 114.42 (2020 low) is in progress. On resumption, next target is 100% projection of 124.37 to 148.38 from 138.81 at 162.82. Nevertheless, sustained break of 151.60 will argue that larger correction is already underway.

In the long term picture, rise from 109.03 (2016 low) is seen as the third leg of the whole up trend from 94.11 (2012 low). Next target is 100% projection of 94.11 to 149.76 from 109.03 at 164.68, and possibly further to 169.96 (2008 high).

EUR/GBP edged lower to 0.8502 last week but quickly recovered. Initial bias stays neutral this week first and further decline is mildly in favor. Break of 0.8502 will resume whole fall from 0.8977 and target 61.8% projection of 0.8874 to 0.8517 from 0.8650 at 0.8436. However, firm break of 0.8583 will bring stronger rebound back to 0.8657 resistance.

In the bigger picture, the down trend from 0.9267 (2022 high) is still in progress. It's seen as part of the long term range pattern from 0.9499 (2020 high). Deeper fall could be seen towards 0.8201 (2022 low). But strong support should be seen from there to bring reversal. This will now remain the favored case as long as 0.8657 resistance holds.

In the long term picture, long term range pattern is extending. But rise from 0.6935 (2015 low) is expected to extend at a later stage, to 0.9799 (2009 high).