Canada’s July inflation data in focus

The USD continued to weaken against its counterparts yesterday as market expectations for a rate cut by the Fed in its next meeting were maintained. Fed Board Governor Waller avoided to comment on the economy and the monetary policy outlook yesterday, yet overall there seems to be a wider majority among policymakers, for an easing of the bank’s monetary policy. Main points of interest in the current week regarding the banks’ intentions are expected to be the release of the Fed’s July meeting minutes on Wednesday and Fed Chairman Powell’s speech at the Jackson Hole Symposium on Friday. Any signals confirming the market expectations for extensive rate cuts by the Fed in the coming months could weigh on the greenback. The issue is expected to have wider implications beyond the FX market and a dovish Fed is expected to support US stock markets and at the same time may also provide some support for gold’s price.

On a technical level, we note that gold’s price stabilised Just above the 2480 (S1) support line, after reaching new record high levels. For the time being we tend to maintain a bullish outlook for the precious metal’s price as the RSI indicator remains between the readings of 50 and 70, implying the presence of a bullish predisposition for the bullion. Also we note that the precious metal’s price is forming higher peaks and higher troughs outlining the upward movement, which is supported by upward slope of the 20, 100 and 200 moving averages. Should the bulls maintain control over the precious metal’s price, we set as the next target for gold bulls the 2600 (R1) resistance level. Yet we note that the precious metal’s price is practically in uncharted waters and stabilised after the price action hit the upper Bollinger band. Should the bears find a chance and take over, we may see the pair breaking the 2480 (S1) support line and aim for the 2390 (S2) support base.

Loonie traders on the other hand are expected to keep a close eye on the release of Canada’s CPI rates for July. The headline rate is expected to slow down and reach 2.5% year on year, if compared to June’s 2.7% year on year. Should the rate slow down as expected or even more and should it also be accompanied by a simultaneous slowdown of the Core rate we may see some bearish tendencies for the Loonie, as the rates would be implying further easing of inflationary pressures in the Canadian economy. In turn, a possible easing of inflationary pressures in the Canadian economy could enhance the market’s expectations for a possible 25 basis points rate cut by BoC in its next meeting.

USD/CAD continued falling yesterday, aiming for the 1.3600 (S1) support line. We intend to maintain a bearish outlook for the pair as long as the downward trendline guiding the pair since the 5 of August, remains intact. We also note that the bearish outlook is also supported by the fact that the RSI indicator remains near the reading of 30 implying a bearish sentiment of the market for the pair. Should the selling interest be maintained, we may see the pair breaking the 1.3600 (S1) support line and aiming for the 1.3460 (S2) support level. Should the bulls take over we may see the pair breaking the prementioned upward trendline and aiming for the 1.3775 (R1) resistance base.

Last but not least, we also note from Australia the release of RBA’s August meeting minutes. In the meeting the bank despite a temptation for another rate hike, decided to keep rates steady for an extended period which could keep the Aussie supported at a monetary level, given that most central banks are preparing or are already cutting rates.

Other highlights for the day

Today we get Germany’s producer prices for July and the Eurozone’s final HICP rates for the same month and Sweden’s Riksbank and Turkey’s CBT are to release their interest rate decisions. In the American session, Atlanta Fed President Bostic and Fed Board Governor Barr are scheduled to speak. During tomorrow’s Asian session, we get Japan’s trade data for July.