Low volatility ahead of July’s US CPI rates

The USD edged a bit higher yesterday yet the overall picture of a sideways motion in a rather quiet market seems to remain unchanged. Market attention increasingly turns towards the release of July’s US CPI rates, which is expected to complete the picture after the release of the US employment report for the same month. On the monetary front, we note that Philadelphia Fed President Harker tended to imply that the bank may have its rate which would be in line with market expectations. Yet we have to note that Richmond Fed President Barkin failed to also signal that a rate hike pause is possible, on the contrary he stated that the US GDP rate remains solid, the labor market is “remarkably resilient” and inflation is too high. A statement that allows for the scenario of another rate hike in September. We continue to expect the market to be moved primarily by fundamentals today given the low number of high-impact financial releases stemming from the US, yet overall volatility seems about to remain at low levels should there be no surprises.

USD/CAD corrected lower yesterday, breaking below the 1.3450 (R1) support line, now turned to resistance. The RSI indicator also corrected lower yet remained above the cut-off point of 50 and the price action respected the upward trendline, yet seems about to put it to the test. Should the upward trendline be clearly broken signaling an interruption of the upward movement we would abandon our current bullish outlook. For the bulls to maintain control over the pair, USD/CAD has to break the 1.3450 (R1) resistance line once again and aim for the 1.3565 (R2) resistance level. Should the bears take over, we may see the pair breaking the prementioned upward trendline but also the 1.3335 (S1) support level, which held its ground on the 4th of August, with the next possible target for the bears being set at the 1.3230 (S2) support barrier.

On the other hand, US stock markets edged lower as Moody’s downgraded a number of mid-sized banks late Monday and warned that it may also downgrade some of the larger US banks. The credit rating agency cited that funding risks and a weaker profitability were possible in the sector justifying the downgrade. Furthermore, Moody’s changed its outlook to negative for eleven major US lenders. We note that the recent collapse of Silicon Valley Bank and Signature Bank has intensified the uncertainty of the market for the sector, causing credit rating agencies to be more conservative with their estimations. Overall, the issue tended to weigh on the market sentiment and forced all three major US stock market indexes, namely the Dow Jones, S&P 500 and Nasdaq to edge lower.

Dow Jones seems to maintain a rangebound movement between the 35735 (R1) resistance line and the 34970 (S1) support line. We expect the pair to remain in a sideways motion given that the prementioned levels are respected. The RSI remains above the reading of 50 and for the time being does not imply a strong bullish sentiment that may allow the sideways motion to be maintained. Should the bulls take over, we may see the index breaking the 35735 (R1) resistance line and aim for the 36445 (R2) level. Should the bears be in charge, we may see the index breaking the 34970 (S1) support line and aim for the 34320 (S2) level. It should be noted that the market sentiment for the European banking sector also plummeted yesterday as Italy passed a once-off 40% tax on unexpected gains Italian banks have recently made. The news had a negative impact on European stock markets as the announcement seemed to take the markets by surprise and practically opens the door for other major economies within the Eurozone to follow that path.

Other highlights for the day:

Today in the European session, we note the release of Germany’s final HICP rate for July. Oil traders may be more interested in the release of the weekly API crude oil inventories figure. During tomorrow’s Asian session, we note the release of China’s inflation metrics for July.

USD/CAD H4 Chart

Support: 1.3335 (S1), 1.3230 (S2), 1.3135 (S3)

Resistance: 1.3450 (R1), 1.3565 (R2), 1.3650 (R3)

US30 Cash Daily Chart

Support: 34970 (S1), 34320 (S2), 33585 (S3)

Resistance: 35735 (R1), 36445 (R2), 36620 (R3)

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This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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