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Slow trading ahead of the US CPI release

Markets aren’t moving much as holiday trading and the lack of macroeconomic news releases slow the markets down. Another factor is that just before the ever-so-important inflation report from the US traders really don’t want to take strong views on the markets. The June inflation expectations in New Zealand dropped to 3.1% from the highs of 3.3% in May. There was no notable reaction in the NZDUSD pair but the pair looks a little weak. There aren’t major risk events scheduled for today but tomorrow we have the US CPI release so be ready to trade it and fund your account now. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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NZDUSD chart 08 09

NZDUSD rallies have been failing lately which suggests weakness in the pair. The nearest key intraday resistance levels are at 0.6287, 0.6293 and 0.6304. It looks to me that the pair could trade down to the 0.6230 – 0.640 range. Alternatively, the market rallies above the 0.6287 level and moves to 0.6310 or so. 

Gold chart 08 09

Gold is trading near a recent swing high but in the 4h chart, the market is still in an uptrend above the 1765 support. The nearest key resistance level is at 1794.82 which is rather close and we need to follow if the market due to the proximity of this resistance trades lower first before it can attempt to move higher again. Other key price levels to focus on are 1754.24, 1775.13 and 1790.66. 

USDJPY chart 08 09

USDJPY found support from levels near the threshold level I gave you yesterday. I said that the market is bullish above 134.43. USDJPY attracted buyers at 134.35 and is trying to push higher. Alternatively, if the 134.43 is violated decisively the market could slip down to 133.80. 

EURJPY chart 08 09

EURJPY – I said yesterday that EURJPY is bullish above 137.28. The level was tested and even penetrated but within an hour the pair was trading above the level again. As the bears couldn’t keep the market below my threshold level (no decisive break below the level) the bulls are now pushing the market higher. Again, If the 137.28 level doesn’t provide support the market is likely to trade down to the 136.55 – 136.80 range. The next major resistance level is at 138.12. 

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsThe 10-week range in the US 10-year treasury yield has been from 2.516% to 3.498%. 
EmploymentThe US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is. 
InflationThe annualised inflation rate for June accelerated to 9.1%. This was the highest reading the Q4 1981 (up 0.5% from May). The cost of energy rose 41.6%. Fuel prices increased 59.9%. These were the biggest increases in these items since Q2 1980. Food costs surged 10.4%, the most since Q1 1981.

 The Next Main Risk Events

  • USD – CPI m/m
  • USD – Core CPI m/m
  • USD – PPI m/m
  • USD – Core PPI m/m
  • USD – Unemployment Claims
  • GBP – GDP m/m
  • GBP – Prelim GDP q/q
  • USD – Prelim UoM Consumer Sentiment

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta

Chief Market Analyst

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