USD weakens ahead of June’s US CPI release

The USD continued to weaken against its counterparts in the aftermath of Fed officials implying that the bank may be nearing the end of its rate hiking cycle after a couple of more rate hikes. It should be noted that NY Fed President Williams also stated in an interview that the Fed still has some way to go before pausing its rate hiking path, yet added nothing new for the market to chew on. In the American session, we highlight the release of the US CPI rates and note that a slowdown is expected both on a headline and a core level, something that may enhance the market’s view that the Fed may be nearing the end of its rate hiking cycle and thus could further weaken the USD. Yet should the CPI rates not fall as expected or even rise we may see the USD getting asymmetric support as that may prompt the Fed to maintain its aggressive hawkish stance. On a technical level the weakening of the USD was evident against the Aussie as AUD/USD rose breaking the 0.6620 (S1) resistance line, now turned to resistance. As the pair was able to break the upper boundary of its prior sideways motion, and the RSI indicator seems to have some tendencies to rise, we switch our sideways bias in favour of a bullish outlook. Should the bulls actually maintain control over the pairs’ direction we may see AUD/USD breaking the 0.6700 (R1) resistance line and aim for the higher grounds. Should on the other hand the bears take over, we may see the pair breaking the 0.6620 (S1) support level and aim for the 0.6555 (S2) support barrier.

North of the US border we also highlight the release of Canada’s BoC interest rate decision. The bank is expected to hike rates by 25 basis points and currently, CAD OIS imply a 78.22% probability for such a scenario to materialize, while the rest considers remaining on hold also a possibility. It should be noted that the market seems to expect the bank to remain on hold afterward, with another rate hike being possible near the end of the year. Hence should the bank actually proceed with the rate hike, market attention is expected to fall on the accompanying statement and any forward guidance. A possible hawkish tone could provide additional support for the Loonie. Financial data tend to imply a rather tight Canadian employment market allowing the bank to proceed with another rate hike and inflation still above the bank’s target, albeit we have to note that inflation has slowed down a bit in May. Should the bank fail to hike rates or hike rates and fail to provide a hawkish forward guidance, we may see the Loonie weakening. Also keep an eye out for BoC Governor Tiff Macklem’s press conference later on, which may extend volatility for CAD pairs.

USD/CAD continued to drop yesterday, breaking the 1.3230 (R1) support line, now turned to resistance. The downward motion of the pair allowed us to draw a downward trendline showing the limitations of the bearish movement and as long as the prementioned downward trendline remains intact we maintain our bearish outlook. Furthermore, please note that the RSI indicator is falling and nearing the reading of 30 also implying a build-up of the bearish sentiment. Should the selling interest be maintained, we may see the pair breaking the 1.3135 (S1) support line and aim for the 1.3060 (S2) support level. Should the pair find extensive buying orders along its path, we may see the pair reversing course, breaking the prementioned downward trendline, the 1.3230 (R1) resistance line and aim for the 1.3335 (R2) resistance base.

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After a rather easy-going European session, we note in the American session besides the release from Canada of BoC’s interest rate decision and the US CPI rates for June also the release of the weekly EIA crude oil inventories figure. On the monetary front Richmond Fed President Barkin, Minneapolis Fed President Kashkari, ECB board member Lane, Atlanta Fed President Bostic and Cleveland Fed President Mester are scheduled to speak. During tomorrow’s Asian session, we note the release of New Zealand’s electronic card sales for June and China’s trade data for the same month.