US Dollar crushed on softer than expected CPI

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Today’s report: US Dollar crushed on softer than expected CPI

There were some things going on in the background on Wednesday like as expected central bank moves from the RBNZ and Bank of Canada and higher commodities prices. But unquestionably, the big headline of the day was the softer than expected US CPI print.

Wake-up call

Chart talk: Technical & fundamental highlights

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EURUSD – technical overview

The Euro remains well supported on dips following a run to the topside through 1.1000 earlier this year. Any additional setbacks should be well supported ahead of 1.0500 in favor of the formation of the next major higher low and a bullish continuation. Ultimately, only a monthly close back below 1.0500 would give reason for concern. Next key resistance comes in the form of the March 2022 high at 1.1234.

  • R2 1.1234 – March 2022 high – Medium
  • R1 1.1200 - Figure– Medium
  • S1 1.1000 - Psychological – Medium
  • S2 1.0943 – 10 July low – Medium

EURUSD – fundamental overview

The takeaway from Wednesday was that while the ECB is still very much in a tightening cycle, the Fed could be on the verge of a pause. We didn't get any meaningful first-tier data out of the zone on Wednesday. Instead, we got a softer than expected US CPI print which fueled massive upside in the Euro. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

EURUSD - Technical charts in detail

GBPUSD – technical overview

Signs have emerged of the market wanting to put in a longer-term base after collapsing to a record low in September 2022. The November 2022 monthly close back above 1.2000 strengthens this prospect. Any setbacks should now be well supported ahead of 1.2000. Next key resistance comes in at 1.3500.

  • R2 1.3091 – 21 April 2022 high – Medium
  • R1 1.3001 – 12 July/2023 high – Medium
  • S1 1.2904 – 12 July low – Medium
  • S2 1.2854 – 11 July low – Medium

GBPUSD – fundamental overview

Successful UK bank stress test results and broad based US Dollar selling in the aftermath of a softer US inflation print were behind the latest run to fresh yearly highs in the Pound. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

USDJPY – technical overview

The major pair has seen a nice recovery following the massive correction out from multi-year highs. Setbacks have finally been well supported ahead of 125.00 in the 127s thus far. At this stage, it looks like the market could be wanting to resume the bigger picture uptrend and head back towards a retest of that multi-year high from October 2022 up at 151.95. Look for any weakness to continue to be well supported ahead of 135.00 in favor of the next higher low.

  • R2 141.47 – 11 July high – Medium
  • R1 140.37 – 12 July high– Medium
  • S1 137.29 – 18 May low – Medium
  • S2 137.00 – Figure – Medium

USDJPY – fundamental overview

There have been more calls of late for a shift in BOJ policy at the upcoming meeting, with many viewing the central bank's ultra accommodative stance as stale and needing of some tweaks that lean more hawkish. We have since seen the Yen benefit in recent sessions as a consequence. Sell stops getting hit on US Dollar longs has also added to the upside momentum in the Yen, especially after Wednesday's softer US CPI print. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

AUDUSD – technical overview

There are signs of the potential formation of a longer-term base following the late 2022 surge back above 0.6500. Next key resistance comes in at 0.7284. Setbacks should continue to be well supported in the 0.6500 area. Only a monthly close below 0.6500 would give reason for rethink.

  • R1 0.7000– 16 June high – Strong
  • R2 0.6806 – 22 June high – Medium
  • S1 0.6676 – 12 July low – Medium
  • S2 0.6595 – 29 June low – Strong

AUDUSD – fundamental overview

Ongoing demand for commodities and US equities have helped to fuel additional upside in the Australian Dollar. Most of Wednesday's move was driven off US Dollar selling from the softer US inflation data. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

USDCAD – technical overview

Above 1.3000 signals an end to a period of longer-term bearish consolidation and suggests the market is in the process of carving out a more significant longer-term base. Next key resistance now comes in up into the 1.4000 area. Setbacks should be very well supported down into the 1.3000 area.

  • R2 1.3387 – 7 July high – Strong
  • R1 1.3290 – 11 July high – Medium
  • S1 1.3143 – 12 July low – Strong
  • S2 1.3117 – 27 June/2023 low – Strong

USDCAD – fundamental overview

Canadian Dollar gains were less impressive than other currencies on Wednesday. And although the Bank of Canada went ahead with another rate hike as expected, it seems the fact that this outcome was priced in resulted in some selling of the fact. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

NZDUSD – technical overview

Overall pressure remains on the downside with the market once again stalling out on a run up into the 0.6500 area. Ultimately, a break back above 0.6577 would be required to take the immediate pressure off the downside. A monthly close below 0.6000 would intensify bearish price action.

  • R2 0.6385 – 11 May high – Strong
  • R1 0.6309 – 12 July high – Medium
  • S1 0.6182 – 12 July low – Medium
  • S2 0.6132 – 6 July low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar caught a nice bid on Wednesday. Initially, the currency was bought up after the RBNZ delivered a hawkish hold decision. The central bank left rates unchanged but remained committed to a restrictive policy stance. We then saw an acceleration of Kiwi gains after US CPI data came in softer than expected. Key standouts on Thursday’s calendar come from UK GDP, trade, industrial production, manufacturing production, and construction output, Eurozone industrial production, the ECB Minutes, US producer prices, and initial jobless claims.

US SPX 500 – technical overview

Longer-term technical studies are in the process of unwinding from extended readings off record highs. Look for rallies to be well capped in favor of lower tops and lower lows. A monthly close back above 4400 will be required to take the immediate pressure off the downside. Next key support comes in at 4260.

  • R2 4500 – Psychological – Strong
  • R1 4489 – 12 July/2023 high – Medium
  • S1 4376 – 10 July low – Medium
  • S2 4328 – 26 June low – Strong

US SPX 500 – fundamental overview

We've finally reached a point in the cycle where the Fed recognizes unanchored inflation expectations pose a greater downside risk than over-tightening. This is significant, as it means less investor friendly monetary policy that risks potential recession in the months ahead. Overall, we expect inflation to continue to be a problem in 2023 that results in downside pressure into rallies despite market expectations that would argue otherwise.

GOLD (SPOT) – technical overview

The 2019 breakout above the 2016 high at 1375 was a significant development, opening the door for fresh record highs. Setbacks should now be well supported above 1600 on a monthly close basis ahead of the next major upside extension. The recent break back above 1808 strengthens the bullish outlook. Next major resistance comes in at 2100, above which opens the next extension towards 2,500.

  • R2 2076 – Record high/2020 – Strong
  • R1 1986 – 24 May high – Medium
  • S1 1900 – Round Number – Medium
  • S2 1893 – 29 June low – Strong

GOLD (SPOT) – fundamental overview

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about inflation risk and a less upbeat global growth outlook. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Peformance chart: 30 Day Performance vs. US dollar (%)

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