US inflation cools in June

The USD tumbled against its counterparts on Wednesday as the US CPI rates for June slowed down more than expected both at a headline as well as at a core level. Market expectations for the Fed to ease its aggressive hawkish stance tended to intensify with some even predicting that the Fed’s rate hiking cycle may come to an early end. For the time being and according to Fed Fund Futures the market seems to continue to expect another rate hike by the bank in its next meeting, yet the expectations for another rate hike after that seem to have been erased , while a rate cut is also expected in Q1 2024. It’s characteristic that on a technical level the USD continued to weaken against the JPY with USD/JPY delivering an over 600 pips drop over the past seven days, by breaking the 136.80 (R1) support line, now turned to resistance. We tend to maintain a bearish outlook for the pair as long as the downward trendline remains intact. Yet, we would also note that the RSI indicator remains below the reading of 30, showcasing the dominance of the bears, yet may also imply that the pair has reached oversold levels and may be ripe for a correction higher. Should the selling interest be extended we may see USD/JPY breaking the 137.45 (S1) support line and aim for the 135.70 (S2) level. If the pair finds buying orders along its path, we may see it reversing course, breaking the prementioned downward trendline in a first signal that the downward motion has been interrupted, break the 136.80 (R1) line and aim for the 140.80 (R2) resistance level. The news tended to provide a boost to US stockmarkets as well, as all three major US stockmarket indexes, namely the Dow Jones, S&P 500 and Nasdaq were in the greens and as the earnings season starts.

Back in the FX market and across the pond we note that pound traders seem to remain confident possibly also due to the results of the stress tests conducted by BoE regarding the financial stability of the UK. The results showed that UK lenders were well capitalized to go through a possible economic crisis , a scenario that allows BoE to remain hawkish and proceed with more rate hikes in the months to come. Pound traders are expected to focus today on the release of the GDP rate for May as well as the manufacturing output growth rate for the same month and forecasts are not looking good. Should there be no surprises we expect a possible weakening of the sterling but even so, it may prove to be temporary, given the wider picture.

We note that cable continued to rise and is currently aiming for the 1.3070 (R1) resistance line. We tend to maintain a bullish outlook for the pair as long as the upward trendline continues to guide the pair. We also note that the RSI indicator was able to break above the reading of 70, highlighting the dominance of the bullish sentiment of the market, yet may also imply that the pair has reached overbought levels and may be ripe for a correction lower. Should the bulls maintain control over the pair we may see it breaking the 1.3070 (R1) resistance line, and aim for the 1.3295 (R2) resistance level. Should the bears take over, we expect GBP/USD to drop, break the prementioned upward trendline, the 1.2845 (S1) support line with the next possible stop for the bears being the 1.2660 (S2) support base. Last but not least we would note the release of China’s trade data for June. The worrying part is that Chinese exports contracted even further, yet the trade surplus was allowed to rise as imports also fell. Nevertheless, the news imply lower economic activity for China’s economy, which could be stressed even further, yet we expect a bottoming out near the end of the year.

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During today’s European session, we note the release of Eurozone’s industrial production for May. In the American session, we note from the US the weekly initial jobless claims figure and the PPI rates for June while San Francisco Fed President Daly is scheduled to make statements. In the Asian session, we note that Fed Board Governor Waller is scheduled to speak.