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EUR/USD

The pair continues tо consolidate since the second half of July. The main support remains the area between 1.0120 – 1.0150, and the main resistance is the wall at 1.0270. After such a long period of indecision, prices can be expected to break the range in either direction and it seems that the market currently needs a catalyst in order to find a clear direction. That could be the U.S. consumer price index scheduled for today at 12:30 GMT. A breach of the 1.0120 support would open the door to a new test of 1.0000. Provided that the U.S. inflation persists and the Fed continues to pursue its aggressive interest rate policy, an attack towards 0.9700 in the medium term is a possible scenario.

USD/JPY

The last few days have been uncharacteristically calm for the USD/JPY, with prices consolidating between the 134.40 support and the 135.35 resistance. Expectations remain aligned with the direction of the main trend – for a breach of 135.35 and an attack on the next zone at 137.40. Another drop towards 134.40 is not ruled out, as such a scenario would allow the bulls to re-enter the market. If this zone fails, then the next support levels for the bears are 133.45 and 132.50.

GBP/USD

The Cable ended the session largely unchanged and failed to hold onto the day's gains. For now, the bulls are finding support above 1.2020 and 1.2060, but further declines towards the 1.2020 zone are also not excluded. On the higher time frames, the downtrend has lost its momentum, but it seems that risk appetite is also lacking among market participants. A more likely scenario remains a continuation of the downtrend, while a breach of 1.2020 would put 1.1920 on the map for the bears.

EUGERMANY40

The bulls failed to overtake the resistance at around 13730, and yesterday, the bears managed to breach the local zone at 13610. Early this morning prices are testing the support at 13500 and if it is breached, then declines towards 13340 are a likely scenario. August tends to be seasonally strong for capital markets and this limits the possibility of more serious declines for the time being. Another attempt to attack 13730 is not out of the woods yet, but in order for this to happen, the bulls would first have to clear out the 13610 level. It is likely for the market to continue trading without a clear direction, with a main support at 13340 and resistance at 13730.

US30

As expected, the U.S. blue-chip rally has lost steam at around 32910. Local support for the bulls is 32700, and the main one is 32470. The first resistance remains at the level of 32910. Despite the strong rally, the expectations currently remain negative. It is possible that the market will distance itself from the current levels and go in reverse, but a rally towards 33470, followed by a massive sell-off targeting the June and July lows, is also a possible scenario. Today, increased activity can be expected around the release of the U.S. CPI data at 12:30 GMT.

The FTSE 100 edged higher supported by financial and commodity stocks. A bullish MA cross on the daily chart shows an acceleration in the rally. As the index grinds a rising trendline, the optimism is likely to attract more buying interest. 7560 at the origin of the June sell-off is a key resistance where the price action may start to struggle under the weight of profit-taking and fresh selling. However, if the bulls manage to lift the triple top at 7650, they could resume the rally in the medium-term. 7450 is an important support.

The euro climbs as traders bet on a 50bp move by the ECB in September. On the daily chart, the directional bias is still up after it bounced off the floor at 133.50. A break above 137.30 forced some sellers out, leaving the door open for an extended rally. 138.90 on the 30-day moving average is the next hurdle and its breach could attract more followers in an attempt to push towards the recent peak at 142.00. 137.10 has turned into a demand zone and the psychological level of 135.00 would be a second line of defence.

Gold rallies as the market awaits US inflation data. A break above the 30-day moving average has helped the recovery gain traction. A rising trendline from late July indicates a bullish bias. The latest pullback found support over 1765, confirming that short-term sentiment remains upbeat. A break above 1795 could bring back momentum buyers and push the bid towards 1814. 1855 at the start of the June sell-off is a major level where the bears could be expected to double down. 1785 is the first support in case of a retracement.

We're seeing plenty of apprehension ahead of the US inflation report on Wednesday, with Asia in the red and Europe following suit.

It's impossible to get away from the fact that the inflation report has held the markets back this week. There's clearly a desperate desire to be more optimistic about the outlook; that's evident from the scale of the recovery already seen in equity markets despite there being seemingly little to celebrate.

But the jobs report on Friday following on from the Fed commentary in the days running up to it has left investors fearing they've got carried away too soon and that data dependency and aggressive tightening can go hand in hand.

I don't think it's an exaggeration to say that today's inflation number could set the tone for the markets for the rest of the month. A lower than expected number could be a major tailwind for the markets while anything around or above the June reading could trigger a big risk reversal in the markets as the debate shifts to 75 or 100 basis points, with 50 left in the rearview mirror.

Encouraging inflation data from China

China is one of the few countries without an inflation problem as was evident in today's CPI and PPI numbers. The headline CPI fell a little short of expectations, with higher pork and vegetable prices largely behind the increase to 2.7%. Core inflation remains subdued as domestic demand remains soft following lockdowns this year that are weighing on activity and putting the growth target further out of reach. Lower fuel and commodity prices contributed to the sharper decline in the PPI number, keeping the pressure off the PBOC to tighten monetary policy and even leaving room for further easing.

Oil slips amid positive nuclear talks and a surprise inventory build

Oil prices are slipping again on Wednesday with WTI dropping back below $90 a barrel amid positive noises coming from the Iran nuclear talks. I don't think we're at the optimistic stage yet as we've seen talks break down before when a deal appears close but it's looking more promising than it has for many months. And those involved have an extra incentive to get a deal over the line.

The inventory data may have given crude another nudge lower, with API reporting a surprise increase of 2.156 million barrels last week. Data from EIA today was expected to show a 100,000 barrel increase so we could be in for another upside surprise which could further weigh on the price. A higher inflation reading could be another downside risk as traders price in further tightening and increased recession risk.

Gold driving higher ahead of inflation data

Gold has been well supported going into the inflation data this week. The prospect of a nasty surprise that has driven caution elsewhere doesn't appear to be holding gold back, with the yellow metal testing $1,800 yesterday and taking another run in that direction today.

A softer inflation reading could be just what it needs to break through the resistance barrier and establish itself above $1,800 once more, something it hasn't managed to do since earlier in the summer. A stronger figure on the other hand could strengthen the resistance and trigger profit-taking after a decent run over the last few weeks.

Momentum fades on approach to $25,000

Even bitcoin is looking a little nervy ahead of the inflation report. As odd as that sounds, bitcoin has shown itself to be very resilient of late, recovering quicker and seemingly not being as phased by setbacks. It will be interesting to see how it responds to any setback today or how well it capitalises on a favourable report. We have seen fading momentum in the run-up to $25,000 but a softer inflation number could be just the catalyst bitcoin needs to turn that around.

Russia halted crude flows to Hungary, Slovakia, and Czech Republic yesterday because sanctions prevented payment of a transit fee. The news didn’t trigger a bull run in crude oil yesterday, though pushed the price of American crude above the $90 mark, warning once again that upside risks prevail to the down-trending oil prices. Good news was that the US oil inventories rose by more than 2 million barrels last week, versus a decline around 400’000 barrels expected by analysts.

Oil bulls are also quite this week, as US and Iran could finally reach a nuclear agreement, which would then unlock the Iranian oil and give a certain relief to the tight-supply market.

Chip stocks in trouble?

Micron Technology was the latest US chipmaker to warn of a significant slowdown in chip demand, yesterday. The stock tumbled 3.74% and sent Nasdaq’s semiconductor index 5% lower at some point. A Citi analyst said that they believe ‘we are entering the worst semiconductor downturn in at least a decade, and possibly since 2001 given the expectation of a recession and inventory build’.

Yes, but Micron also announced it would invest $40 billion in US plants relying on the government’s $52 billion bill, and to counter the growing Chinese competition. However, the disappointing quarterly results, and warnings of a slower industry demand could kill the Chips Act rally that was triggered at the beginning of last month.

Elsewhere, Coinbase announced a $1.1 billion loss and missed the revenue expectations in Q2 as the tumbling cryptocurrency prices battered earnings. Coinbase shares plunged 10%, Bitcoin slipped below the $23K mark, along with the selloff in Nasdaq stocks.

US inflation is crucial for sentiment

Today is probably the most important day of the week in terms of economic data, as the US will reveal its latest CPI data, and investors have high expectations of seeing a softer figure in July.

The US CPI data is expected to have slowed to 8.7% in July, from 9.1% printed a month earlier. The recent downside correction in energy and commodity prices, the sharp fall in inflation expectations, as released by the NY Fed yesterday, and deflation in online goods prices point that we may see some relief on consumer prices of last month. Rising wages, and high rents remain factors that could keep inflation sticky at high levels.

A CPI figure in line with expectations, or ideally softer will certainly temper the hawkish Federal Reserve (Fed) expectations, pull US yields lower and trigger a relief rally across stock markets. We could then see the S&P500 make another attempt on the critical 4200 resistance.

Looking at the gold chart, a further downside correction in the US yields, along with geopolitical tensions in Ukraine and Taiwan, could push the price of an ounce higher, and lead to a cup and handle formation, paving the way for a positive breakout above the $1800 mark in the coming sessions.

However, a higher-than-expected CPI print, or worse, a number above last month’s 9.1% print would revive the expectations that the Fed would continue hiking rates by big chunks – especially given that the jobs market seems surprisingly resilient to the Fed tightening so far. That would send the US yields higher and encourage a downside correction of the July stock rally. We could see the S&P500 pullback to the 50-DMA, around 3950 mark.

Market movers today

The most important data release of the day will be the US July CPI. Following the recent decline in gasoline prices, consensus is expecting headline CPI growth to ease to 0.2% m/m (8.7% y/y). Fed will focus especially on the core inflation, where consensus is looking for a slight moderation to 0.5% m/m as fading supply chain challenges have likely eased price pressures on goods. Even though headline inflation is likely to moderate over the coming months, we continue to see risks tilted towards inflation surprising to the upside.

Inflation data will also be released for Norway and Denmark, and the revised final CPI will be released for Germany. Fed's Evans and Kashkari will be on the wires in the evening.

The 60 second overview

Natural gas: The UK government prepares for a worst case scenario of power shortfall over the winter. In this scenario, which builds on assumptions of lower than normal temperatures and reduced imports from Norway and France, UK could see a shortfall of around one sixth of peak demand.

China: Inflation in China rose to 2.7% in July - the highest level of inflation in two years.

Equities: Oil prices continued to dictate the way for equity markets on Tuesday. As Russia said oil flows from the Druzhba pipeline had been suspended, oil prices turned volatile. This also sent equity markets into a risk-off rotation. Investors bought into value defensives and selling the July winning growth cyclicals. Volatile session ending with Dow -0.2%, S&P 500 -0.4%, Nasdaq -1.2% and Russell 2000 -1.5%.

FI: It is big inflation day today with the release of US CPI for July, final CPI-data for Germany as well as inflation data from both Denmark and Norway.

Inflation in the US is expected to decline modestly, but not enough to dampen the speculation regarding a 75bp rate hike at the Fed meeting in September after the strong labour market report last week. Hence, the curve flattening is likely to continue.

FX: CHF and EUR rose vis-à-vis CAD, JPY and AUD yesterday in a relatively steady FX market. EUR/USD rose back above 1.02, EUR/NOK stayed below 10.00 and EUR/SEK below 10.40.

Credit: Credit spreads widened slightly yesterday in response to the overall weaker risk sentiment. iTraxx Main was wider by 3bp to 103bp, while Crossover widened 14bp to 519bp. The primary market saw modest issuance activity in USD and GBP yesterday, while the EUR market remains quiet reflecting the usual seasonal pattern.

Nordic macro

Denmark. We expect Danish July CPI inflation declined slightly in July to 8.0% from 8.2% in June. The decline comes from the falling oil prices we have seen through July, which have pulled gasoline prices lower. Other energy prices such as gas and electricity on the other hand have continued to increase. In July we have several jokers which increases uncertainty. Food prices is a big joker every month. We expect another large increase, although smaller than in the previous months. Global food prices have declined over the summer, which could stop the consumer price surge later this year. Besides food, vacation related prices and the size of the summer clothing sale are the biggest July jokers.

Norway. Norwegian core inflation continues to rise on a combination of higher imported prices for everything from food to furniture, and domestic prices driven by higher labour costs, transport costs, energy costs, etc. In recent months, the seasonally adjusted core inflation has been around 0.3-0.4% m/m, and at the same time we know that food prices presumably rose abnormally much as a result of the agricultural settlement and that air fares were strongly affected by the strike in SAS. Hence, we expect that core inflation accelerated slightly in July, and was somewhat higher than last year. We therefore believe that core inflation rose further to 3.8% y/y in July. In that case, it is well above Norges Bank's estimate of 3.2% from the monetary policy report in June, and will thus provide ammunition to the market, which is currently pricing in around 42bp at the rate meeting next week.

Sweden. Production value index (PVI) and data on household consumption for the month of June is due for release today. Both are important inputs to the GDP estimate for Q2, which Statistics Sweden's GDP-indicator estimates at 1.4% q/q. As Swedish manufacturing still holds up well according to survey-based indicators the former could corroborate the GDP-indicator's estimate. As for household consumption, retail sales fell 1.2% m/m during June, so risks might be tilted towards a weaker print.

Daily Pivots: (S1) 0.6946; (P) 0.6970; (R1) 0.6987; More...

Range trading continues in AUD/USD and intraday bias remains neutral. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

The forex markets are somewhat in hibernation mode this week. Dollar is currently the weakest one, followed Yen. Commodity currencies are generally firm. But Swiss Franc is the strongest, thanks to buying against the weakening Euro and Sterling. But overall, with the exception of a few Yen pairs, major pairs and crosses are staying inside last week's range. Hopefully, the markets will wake up after today's US CPI release.

Technically, CHF/JPY is currently the top mover for the week, up 0.86%. While it may be losing some upside momentum, further rally is expected as long as 139.97 support holds. Corrective pattern from 143.73 is tentatively seen as completed with three waves down to 137.13. Retest of 143.73 high should be seen in the near term and firm break there will resume larger up trend.

In Asia, at the time of writing, Nikkei is down -0.71%. Hong Kong HSI is down -2.23%. China Shanghai SSE is down -0.62%. Singapore Strait Times is up 0.38%. Japan 10-year JGB yield is up 0.0244 at 0.191. Overnight, DOW dropped -0.18%. S&P 500 dropped -0.42%. NASDAQ dropped -1.19%. 10-year yield rose 0.032 to 2.797.

Fed Bullard: Too early to claim inflation has peaked

St. Louis Fed President James Bullard said in an MNI interview, "we may see some relief in the headline CPI tomorrow but the reason we tend to track core PCE inflation is exactly because we ignore the energy price movement on the way up but also on the way down."

"I would like to see improvements across a range of indicators of inflation, not just one measure ticking down a little bit but clear and convincing evidence," he said, adding that it's going to be "much harder" to get core factors to turn around.

Bullard still wants to get interest rates to 3.75-4.00% range by the end of the year. "I think the destination is a little bit higher than what I would have thought even a couple months ago because inflation has continued to broaden out and doesn't look like it's turning the corner at least based on the evidence we have today... I think it's too early to make the claim that inflation has peaked."

S&P 500 pressing key resistance ahead of US CPI

It's been a very quiet week in the markets so far, and today's US consumer inflation release should bring trading back to life. Economists are expecting headline CPI to slow from 9.1% yoy to 8.7% yoy in July. But core CPI is expected to rise from 5.9% yoy to 6.1% yoy. While one data point is definitely insufficient to tell the trend, traders are still eager to get hints on whether inflation is still climbing, plateauing, or starting to reverse.

The next move in Dollar would very likely be driven by overall risk sentiment after the CPI release. The greenback tends to weaken in risk-on markets, and strengthen in risk-off markets. For now, as benchmark treasury yield is stuck in consolidation, reactions in stocks are more dollar-moving.

S&P 500 is pressing and important cluster resistance level of 4177.51, as well as 55 week EMA (now at 4182.34). Sustained trading above this 4177/82 zone will add much credence to the case that whole correction from 4818.62 has completed with three waves down to 3636.87. That would set the stage for further rally towards 4818.62 high later in the year, subject to upcoming data release of course. Nevertheless, break of last week low at 4079.891 will tentatively indicate short term topping and bring deeper pull back to 55 day EMA (now at 4012.26) in the near term.

Elsewhere

Japan PPI slowed from 9.4% yoy to 8.6% yoy in July, above expectation of 8.4% yoy. China CPI rose from 2.5% yoy to 2.7% yoy, below expectation of 2.9% yoy. PPI dropped from 6.1% yoy to 4.2% yoy, below expectation of 4.9% yoy.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6946; (P) 0.6970; (R1) 0.6987; More...

Range trading continues in AUD/USD and intraday bias remains neutral. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Economic Indicators Update

It's been a very quiet week in the markets so far, and today's US consumer inflation release should bring trading back to life. Economists are expecting headline CPI to slow from 9.1% yoy to 8.7% yoy in July. But core CPI is expected to rise from 5.9% yoy to 6.1% yoy. While one data point is definitely insufficient to tell the trend, traders are still eager to get hints on whether inflation is still climbing, plateauing, or starting to reverse.

The next move in Dollar would very likely be driven by overall risk sentiment after the CPI release. The greenback tends to weaken in risk-on markets, and strengthen in risk-off markets. For now, as benchmark treasury yield is stuck in consolidation, reactions in stocks are more dollar-moving.

S&P 500 is pressing and important cluster resistance level of 4177.51, as well as 55 week EMA (now at 4182.34). Sustained trading above this 4177/82 zone will add much credence to the case that whole correction from 4818.62 has completed with three waves down to 3636.87. That would set the stage for further rally towards 4818.62 high later in the year, subject to upcoming data release of course. Nevertheless, break of last week low at 4079.891 will tentatively indicate short term topping and bring deeper pull back to 55 day EMA (now at 4012.26) in the near term.