US August CPI rates in focus

Despite the USD remaining relatively unchanged yesterday against its counterparts, the greenback tumbled during today’s Asian session, as the attention shifted to the US presidential debate between Harris and Trump. Stakes are high and uncertainty about the outcome of the US Presidential elections is high as well, remaining so after the debate, so the issue is expected to continue to keep the market’s attention on a fundamental level. Today we highlight the release of the US CPI rates for August. The headline rate is expected to slow down to 2.6% yoy if compared to July’s 2.9% yoy, which may imply an easing of inflation in the US economy. On the flip side and on a core level, the CPI rate is expected to remain unchanged at 3.2% yoy, implying a resilience of inflationary pressures. Overall, should the release show a further easing of inflation in the past month, we may see the USD weakening further, as it could enhance the market’s expectations for the Fed to start cutting rates at a faster pace until the end of the year.

EUR/USD continued edging lower yesterday yet during today’s Asian session, bounced on the 1.1010 (S1) support line regaining yesterday’s losses and then some. We tend to maintain our bias for the sideways motion of the pair given also that the RSI indicator remained near the reading of 50, implying a continuation of the market’s indecisiveness. Should the bulls take over, we may see the pair reversing direction, breaking the 1.1140 (R1) line and thus open the gates for the 1.1275 (R2) barrier. Yet the pair seems to be forming lower peaks and lower lows and should the bears manage dominate the pair’s direction we may see EUR/USD breaking the 1.1010 (S1) line, with the next possible target for the bears being set at the 1.0890 (S2) base.

In the land of the rising sun, JPY continued to enjoy support as safe haven flows poured in during the Trump-Harris debate. At the same time, we also note BoJ’s hawkish intentions which also provide support for the Yen across the board. It’s characteristic that BoJ policymaker Nakagawa, signaled the bank’s readiness to continue hiking rates. Mr. Nakagawa was reported stating “Given real interest rates are currently very low, we will adjust the degree of monetary support, from the standpoint of sustainably and stably achieving our 2% inflation target, if our economic and price forecasts are met“. The market seems to expect the bank to remain on hold for the next two meetings and deliver a rate hike in December. We note that the bank may be more hawkish than what the market expects and thus BoJ’s intentions seem to continue to support the JPY on a monetary level.

On a technical level, we note that USD/JPY’s drop restarted yesterday and intensified during today’s Asian session aiming for the 140.30 (S1) support line. We tend to maintain a bearish outlook for the pair, given its downward motion since the 16 of August and also given that the RSI indicator remains just above the reading of 30, implying a strong bearish sentiment on behalf of market participants for the pair. On the flip side, the pair’s price action is nearing the lower Bollinger Band, which may slow down the bears. Should the selling interest be extended, we may see the pair breaking the 140.30 (S1) line and start aiming for the 137.25 (S2) level. For a bullish outlook we would require the pair to rise, break the 143.40 (R1) line and continue to break the downward trendline guiding it since the 15 of August, aiming for the 146.00 (R2) level.

Other highlights for the day

Today in the European session, we got UK’s GDP and manufacturing output growth rates for July which were somewhat disappointing, while we note that ECB Board Member McCaul will be speaking. In the American session, ECB’s Buch is speaking, while oil traders may be more interested in the release of EIA’s US weekly crude oil inventories. During tomorrow’s Asian session, we get New Zealand’s electronic card sales for August and from Japan the corporate goods prices growth rate for the same month.