May’s US CPI rates in focus for market participants

The US CPI rates for May are set to be released during today’s American trading session. The current expectations by economists are for the headline and core rates to come in at 2.5% and 2.9% respectively, which would be higher than the last month’s rates of 2.3% and 2.8%, thus implying an acceleration of inflationary pressures in the US economy. Therefore, should the CPI rates come in as expected or higher it could potentially aid the greenback, as the implications of a potential resurgence of inflation in the US economy, could increase pressure on the Fed to remain on hold for a prolonged period of time. On the other hand, should the CPI rates come in lower than expected and thus imply easing inflationary pressures, it could weigh on the dollar. On a geopolitical level, we note the recent reports by Reuters that U.S and Chinese officials had agreed yesterday on a framework to bring back their trade truce with the White House expecting the removal of China’s export restrictions on rare earth materials. However, per the same report there has been little sign of a resolution which would address their trade differences. The framework now gives the two countries up until the 10th of August to reach a comprehensive agreement otherwise, the outrageous tariffs we saw of 145% and 125% will be reinstated. Overall, we are not surprised that such a scenario played out with both sides returning to the starting line. Over in the EU, according to a report by Bloomberg the EU believes trade negotiations with the US could extend beyond the July 9th deadline which in turn could weigh on the European equities markets.

EUR/USD appears to have failed to clear our 1.1445 (R1) resistance line and appears to be on track to break below our upwards moving trendline which was incepted on the 12th of May. We opt for a sideways bias and supporting our case is the pair’s failure to clear our R1 resistance level. However, our RSI indicator below our chart currently registers a figure near 60, which tends to imply a bullish market sentiment, as well as our MACD indicator. Nonetheless, for our sideways bias we would require the pair to remain confined between the 1.1185 (S1) support level and the 1.1445 (R1) resistance line. On the flip side we would immediately switch our sideways bias in favour of a bullish outlook in the event of a clear break above our 1.1445 (R1) resistance line with the next possible target for the bulls being the 1.1685 (R2) resistance line. Lastly, for a bearish outlook we would require a break below our 1.1185 (S1) support level with the next possible target for the bears being the 1.0950 (S2) support line.

XAU/USD appears to be moving in a predominantly sideways fashion. We opt for a sideways bias for gold’s price and supporting our case is the RSI indicator below our chart, which currently registers a figure near 50, implying a neutral market sentiment. For our sideways bias to be maintained we would require gold’s price to remain confined between the 3240 (S1) support level and the 3385 (R1) resistance line. On the other hand, for a bullish outlook we would require a clear break above the 3385 (R1) resistance line with the next possible target for the bulls being the 3500 (R2) resistance level. Lastly, for a bearish outlook we would require a break below our 3240 (S1) support line with the next possible target for the bears being the 3115 (S2) support level.

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Today we highlight the release of the US CPI rates for May and Canada’s building permits for April, while oil traders may be more interested in the release of the weekly US EIA crude oil inventories figure. On a monetary level, we note that ECB’s Board Members Buch and Lane as well as ECB policymaker Makhlouf are scheduled to speak, while on a fiscal level, we highlight that UK finance minister Rachel Reeves is to announce a multi-year spending plan before the UK Parliament. In tomorrow’s Asian session, we get New Zealand’s May electronic card retail sales.