Daily Key points: US Inflation print out today

The US dollar traded calmly yesterday, hovering above the $106 level, ahead of today’s widely anticipated CPI rates releases. Today’s main event is to be the US year on year and month on month CPI rates for July with traders looking closely. According to forecasted data, the year on year CPI rate is expected to drop from 9.1% to 8.7%, as well as the month on month from 1.3% to 0.2%. Should the actual rates meet their respective forecasts, we may see the dollar weakening, with the peak and slowdown of inflationary pressures possibly signalling, that the preceding interest rate hikes by the Fed may have had a material impact.  Moreover, if we indeed see the forecasted scenarios materialize, we may see some pressure being lifted from the Fed’s shoulders, easing the need to proceed with further aggressive interest rate hikes in their September meeting, thus driving the greenback even lower. We have to note nonetheless that plenty can happen between today and the Fed’s upcoming meeting.  Currently FFF assigns a 69.5% probability for the Fed to hike rates by 75-basis points, with the market having already priced in the better-than-expected employment results released last Friday, which underlined the tightness of the US labour market. It should be noted that the Chicago Fed President Evans is scheduled to speak post the CPI data release and his comments could be of value, as the market anticipates eagerly for hints in regards to the Fed’s monetary policy outlook.

So far previous Fed speakers followed a unified consensus towards their approach, openly stating that the decision will be data driven and markets expect statements of similar nature.  Gold extended its momentum, reaching the $1800 mark, supported by safe haven inflows, global recession concerns and rising geopolitical tensions, Adding to the bullish tone was overall negative outlook surrounding the dollar as a consequence of the uncertainty of Fed’s future tightening path. In addition, the weekly EIA Crude Oil inventories figure and EIA Crude Cushing figure are to be released later today and are expected to catch trader’s attention. Should the actual figures drop as expected, we may see WTI prices being supported as the forecasted data indicates a decrease in crude oil stock reserves which implies increased demand for oil as well as increased production activity in the US economy.  Also, we would like to point out the current developments in the Turkish economy. During the weekend President Erdogan met with Russian President Putin in Sochi and according to news sources, the agreement between the two seems to allow Turkey to buy Russian oil and natural gas by paying with Rubles, while aligns Turkey to Russia’s Mir payment system. The news could provide a boost to the Turkish economy at a crucial moment, yet seems to leave TRY unimpressed for now.

USDIndex traded sideways yesterday, between 105.10 support and 106.82 resistance levels. Given the upward trendline since the 2^nd of August, we remain bullish. Yet, given the stabilization of the index’s price action, the threatening of the prementioned upward trendline and the RSI indicator which remains near the reading of 50, we see a sideways movement emerging. Should the bulls reign over, we may see the break of the 106.82 (R1) line and a move close to the 107.64 (R2) level. Should the bears take over, we require seeing the break of the ascending trendline, the break of the 105.10 (S1) and a move near the 104.46 (S2) level.

XAUUSD tested the $1800 level yesterday, but quickly retracted. We hold a bullish bias for gold’s price action as supported by the ascending trendline. Should the buyers pile in, we may see the price extend upwards, breaking the $1800 (R1) level and head for the $1839 (R2) level. Should sellers overwhelm, we may see the break below the ascending trendline, the break of the $1760 (S1) base and move near the $1723 (S2) level.

Other highlights for the day:

We would also like to point out Germany’s final HICP yoy rate for July and the Czech Republic’s yoy CPI rate for the month of July.

USDIndex H4 Chart

Support: 105.10 (S1), 104.48 (S2), 103.82 (S3)

Resistance: 106.82 (R1), 107.64 (R2), 108.53 (R3)

XAUUSD H4 Chart

Support: 1760 (S1), 1723 (S2), 1683 (S3)

Resistance: 1800 (R1), 1839 (R2), 1874 (R3)

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