US June CPI rates in the spotlight

The USD corrected lower yesterday against its counterparts and market focus is on the US inflation report for June due out in the American session. The headline rate is expected to slow down from 3.3%yoy in May to 3.1%yoy in June. Yet the core rate tells a different stay as it is expected to remain unchanged at 3.4%yoy. Should the actual rates meet their respective forecasts mixed signals may be received by the market and a possible stubbornness of inflation at a core level to ease may force the Fed to maintain rates high for longer. The release has been hyped by media over the past few days, hence tends to gain on attention and could have ripple effects beyond the FX market and a possible failure of the CPI rates to slow down could weigh on US stock markets and gold’s price.

USD/JPY seems to remain in a sideways motion between the 160.35 (S1) support line and the 163.00 (R1) resistance level yet some bullish tendencies seem to emerge. We tend to maintain our sideways movement bias, yet at the same time we have to note that the RSI indicator runs along the reading of 70, which tends to imply the presence of a strong bullish sentiment among market participants. For a renewal of the bullish outlook we would require the pair to break the 163.00 (R1) resistance line and set the next possible target for the bulls at the 166.00 (R2) resistance level, yet note that the pair practically enters unchartered waters for the past 34 years. For a bearish outlook, we would require the pair to break the 160.35 (S1) support line clearly and take aim of the 157.75 (S2) support base.

Across the pond, the GBP seems to be gaining some ground against the USD, the JPY and the EUR in a sign of wider strength. We highlight the release of the UK GDP rates for May, which came in higher than expected brightening the macroeconomic outlook of the UK and thus providing some support for the sterling during today’s early European session. Also, on the monetary front we are getting some mixed signals as on the one hand BoE’s Chief economist Hugh Pill sees the case for rate cuts to come, yet the timing is still open, while BoE MPC member Mann is still seeing price pressures implying the need to keep rates high for longer. Overall though the balance of power within the BoE, seems to be shifting towards rate cuts which could weigh on the pound. On a fundamental level, the new UK finance minister, Reeves, seems to be actively pursuing growth for the UK economy and is ready to expand the country’s fiscal policy, which could support the GBP.

GBP/USD is currently aiming for the 1.2890 (R1) resistance line. Please note that the pair has practically reached a new 4 month high. We tend to maintain a bullish outlook for the pair as long as the upward trendline which was intitiated on the 2^nd of July and continues to guide the pair remains intact. Furthermore we note that the RSI indicator is on the rise nearing the reading of 70 and implying that the bullish sentiment is building up among pound traders. Should the bulls maintain control over the pair we may see GBP/USD breaking the 1.2890 (R1) resistance line and take aim at the 1.3000 (R2) base. Should the bears take over, we may see the pair dropping, breaking the prementioned upward trendline in a first signal that the upward movement has been interrupted, breaking the 1.2760 (S1) line and taking aim of the 1.2600 (S2) level.

Other highlights for the day

During the European session today, besides the UK releases we also note the release of Germany’s final HICP rates for June, while ECB Policymaker and Bank of France Governor De Galhau is scheduled to make statements. In the American session besides the release of the US CPI rates for June, we also note the release of the weekly initial jobless claims figure while Atlanta Fed President Bostic and St. Louis Fed President Musalem are speaking. During tomorrow’s Asian session, we note the release of New Zealand’s manufacturing PMI and electronic Card sales, while from China we get the trade data, all for June.