The U.S. dollar is under pressure after June CPI came in cooler than expected, reinforcing the view that inflation continues to move in the right direction. Headline CPI fell 0.4% m/m, well below the -0.1% consensus, while core CPI was unchanged at 0.0%, versus expectations for a 0.2% increase. The softness was broad-based, with core goods prices falling for a second consecutive month, core services excluding housing declining 0.2%, and shelter costs rising a modest 0.12%. While the report is encouraging, the inflation battle is not over. Fed Governor Christopher Waller stressed yesterday that one favorable inflation report is not enough and that policymakers would need to see several months of subdued inflation before becoming more confident that price pressures have been contained. Whether those comments also reflect Fed Chair Kevin Warsh’s current thinking will become clearer when he testifies before Congress today. For now, today’s data likely reduces the urgency for another rate hike at the next FOMC meeting. However, with crude oil back above $80 a barrel—currently around $80.20, up roughly $2.10—the recent disinflationary boost from lower energy prices may begin to fade. That could leave Warsh continuing to emphasize that inflation, while improving, remains above the Fed’s objective and that the fight against inflation is not yet finished.
The dollars move to the downside has been limited,however, with some technical levels preventing a further decline. A quick summary for some pairs shows:
- EURUSD. The EURUSD moved higher, but is finding resistance sellers against the 38.2% retracement of the last trend move down from and of May high. That level comes in at 1.14618. The high price just reached 1.1462 precisely at the level. The price needs to get above it and the high price from two weeks ago at1.14715 to open the door for further upside momentum.
- GBPUSD. The GBPUSD moved above its 100 and 200 day moving averages near 1.3399. The price also moved above the 50% midpoint of the move down from the May 1 high near those same levels. That area is now risk for the buyers (stay above 1.3395). The buyers would not want the price to move below those levels. The move to the upside, however, stalled against a swing area between 1.3446 and 1.3465.
- USDJPY: The USDJPY moved lower and below its 100 hour moving average at 162.18, and it 200 hour moving average at 161.94. The low price reached 161.64. That was still short of the next key target areaat the 38.2% retracement of the move up from the May 19 low at 161.21. In trading on Friday, the low prices stalled just have that retracement level at 161.265. With the low price only reaching 161.64 there is still a lot of ground to cover to give the sellers more control. Traders would not want to see the price low back between the 200 hour moving average and the 100 hour moving average. That would be a disappointment.
- USDCHF: The USDCHF moved lower and briefly extended below its 200 hour moving average at 0.80701, but could not extend below a swing area target between 0.8062 and 0.8069. The low price reached 0.8068 and has bounced back between the 200 hour moving average at 0.8070 and 0.8089. The technical bias is now more neutral between those levels.
- USDCAD: The USDCAD moved below the swing area target between 1.41297 and 1.4143 and also the lows from Friday and Monday near 1.4116. The low price extendedd to 1.4056. The price of the USDCAD has been trending since May 1. As a result, there is a lot of room to the downside to retrace before the sellers start to take back control. One of the key levels would be the 38.2% of the move up from the May 1 low. That level comes in at 1.39806. With the low aw 1.4056, there is room to roam on more downside momentum Traders would not want to see the price extend back above Friday’s low at 1.4116 nor above the aforementioned swing area between 1.4129 and 1.4143.
Looking at other markets, the US stocks are mixed with the Dow lower as IBM earnings weigh on that index. The NASDAQ index is up 310 points.
US yields are lower with the two-year down -7.4 basis points at 4.189%. The 10 year is down 3.6 basis points at 4.573%.
This article was written by Greg Michalowski at investinglive.com.