inflation report

On Tuesday, the demand for the pound was significantly higher than that for the euro. As soon as this happened, many analysts began to pay attention to the report on prices in UK stores, as shop price inflation accelerated to 9% this month. This indicates that UK inflation is decreasing slowly or not decreasing at all, despite the benchmark interest rate being raised to 4.5%.   The consensus forecast for the Bank of England's rate currently suggests two more quarter point rate hikes in June and August.   This would bring the rate to 5%. Any further tightening without alternatives would push the British economy into a recession, and even the current rate could potentially cause it, despite the BoE's optimistic forecasts. But how can inflation be combated if it hardly responds to the actions of the central bank?     I believe there can only be one disheartening answer: it cannot. If further rate hikes lead to a recession, the Brits, clearly dissatisfied with recent events within the country, may start a new wave of mass strikes. Take note that in the past year, many Brits have openly criticized the British government for the sharp decline in real incomes and high inflation.   If the rate increases further, the economy will contract, leading to an increase in unemployment. If the rate is kept as it is, it might take years for inflation to return to the target level. The BoE is in a deadlock. BoE Governor Andrew Bailey expects inflation to start decreasing rapidly from April. He noted the decline in energy prices, which will somewhat dampen inflationary pressure on all categories of goods and services. However, the April inflation report was unusually contradictory. While headline inflation showed a significant slowdown, core inflation continues to rise.   Therefore, it is not possible to conclude that inflation is slowing down in the general sense. We can only wait and observe. If Bailey turns out to be right, then the BoE will not need to raise the rate to 5.5% or 6%, which currently seems like a fantasy.   However, if inflation continues to hover around 10%, the BoE will need to devise new measures to address it without exerting serious pressure on the economy. It might require patience for several years. It is entirely unclear which option the central bank will choose.   The demand for the British pound may increase as market expectations of a hawkish stance grow. But will these expectations be justified? The pound may rise based on this, but fall even harder when it becomes clear that the BoE is not ready to raise the rate above 5%. I believe that wave analysis should be the primary tool for forecasting at the moment.     Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, as the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic.   A corrective wave may start from the 1.0678 level, so you can consider short positions if the pair surpasses this level. The wave pattern of the GBP/USD pair has long indicated the formation of a new downtrend wave. Wave b could be very deep, as all waves have recently been equal.   A successful attempt to break through 1.2445, which equates to 100.0% Fibonacci, indicates that the market is ready to sell. I recommend selling the pound with targets around 23 and 22 figures. But most likely, the decline will be stronger.    

All eyes on central bankers as Fed, ECB meet The dollar struggled in lackluster trading last week, as the rebound in commodity prices and improving investor sentiment meant the main 2023 trends continue to drive markets: a soft dollar, and a particularly strong showing by commodity currencies.   Latin American currencies continue to shine, and at the other end, we have the Turkish lira, spiralling down week after week as markets lose patience with Erdogan's bizarre fiscal and monetary notions.   After a news-light week, markets are bracing for the Federal Reserve and European Central Bank meetings. Markets are pricing in a one-third chance of a hike from the Fed Wednesday. However, the release of the critical inflation report for May the day before means that some FOMC members likely will not decide their vote until the day of the meeting. The ECB decision is an easier call, with markets and strategists universally expecting a 25 bp hike; the key there will be the new staff forecasts and the hawkishness of the communications. Expect plenty of volatility.

GBP/USD extended its downward movement on Tuesday, but in general, it remains stable. After a three-day correction, the pair barely managed to test the critical line without surpassing it. Thus, the uptrend persists ahead of an important inflation report in the UK, the Bank of England's meeting, and two speeches by Jerome Powell in the US Congress.   It is evident that these events will impact market sentiment, but it is currently impossible to determine how exactly. We need to be prepared for any developments. We believe that in the medium term, the pound should fall rather than rise, but the market currently holds a different opinion. We do not see any signs of the upward trend coming to an end. There were several trading signals on Tuesday. Initially, the pair bounced off the level of 1.2762, providing a buy signal. Following this signal, the price moved up by about 26 pips, which was enough to set the stop-loss at breakeven. Subsequently, there was a consolidation below the level of 1.2762, after which the pair dropped to the critical line but failed to surpass it. Consequently, it was advisable to close the short position at that point. The profit amounted to approximately 20 pips. The last buy signal formed quite late, but it could have been attempted. It resulted in an additional profit of 10-20 pips. Since the volatility was relatively low, such a level of profit was acceptable.   COT report: According to the latest report, non-commercial traders closed 5,200 long positions and 4,500 short ones. The net position dropped by 700 but remained bullish. Over the past 9-10 months, the net position has been on the rise despite bearish sentiment. In fact, sentiment is now bullish, but it is a pure formality. The pound is bullish against the greenback in the medium term, but there have been hardly any reasons for that. We assume that a prolonged bear run may soon begin even though COT reports suggest a bullish continuation. However, we can hardly explain why the uptrend should go on. The pound has gained about 2,300 pips. Therefore, a bearish correction is now needed.   Otherwise, a bullish continuation would make no sense even despite the lack of support from fundamental factors. Overall, non-commercial traders hold 52,500 sell positions and 65,000 long ones. We do not see the pair extending growth in the long term. 1H chart of GBP/USD In the 1-hour chart, GBP/USD maintains a bullish bias, although it is correcting at the moment. The ascending trend line serves as a buy signal but I believe that further growth of the British currency is groundless. The pound sterling has been climbing for too long and downward corrections are short-lived (like in the last three days). Judging by the technical indicators, we have an uptrend. It is not advisable to sell the pair without proper signals. The market can sustain the trend even without a "fundamental" basis. On June 21, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2532) and Kijun-sen (1.2739) may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits. On Wednesday, the UK has the most important inflation report, and in the US - Federal Reserve Chairman Jerome Powell's first address to the Congress. Thus, it could be an interesting and volatile day. We think that the fall is more likely, but the pair also maintains a bullish bias and the market can start buying the pound again on any background.  

BoE decides after another bad inflation report.     Federal Reserve (Fed) Chair Powell didn't say anything we didn't know, or we wouldn't expect in the first day of his semiannual testimony before the American lawmakers yesterday. He said that the Fed will continue hiking rates, but because they are getting closer to the destination, it's normal to slow down the pace. He repeated that two more hikes are a good guess, and that the economy will suffer a period of tight credit conditions, below-average growth, and higher unemployment to return to lower inflation.   The US 2-year yield pushed higher. The 10-year yield was flat given that higher short term yields point at higher recession odds for the long term. The gap between the 2 and the 10-year yield is again at 100bp.  In equities, the S&P500 gave back some field, but not all sectors suffered. Tech stocks pulled the index lower, financials and real estate were down, but energy stocks led gains as US crude jumped past $72pb on news that the US inventories dipped by around 1.2 mio barrel last week. Industrial, materials and utilities were up, as well, as a sign that a rotation toward the laggards could be happening rather than a broad-based moody selloff.  In currencies, the US dollar fell and is now testing the April-to-date ascending base - not because the Fed's Powell sounded more dovish, but because what's happening beyond the US borders makes the Fed look more dovish than what it really is.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank

BoE decides after another bad inflation report  The Bank of England (BoE) meets after another shocker inflation report, and is broadly expected to hike the rates by another 25bp points.   The BoE is the first major central bank that started hiking the rates to fight inflation. It proved to be the least efficient bank doing this job; British inflation is the worst among developed economies at nearly 9%. Consequently, the BoE will certainly be the last to finish hiking. The bank is expected to hike six more times, by 25bp, to reach a peak rate above the 6% by the end of this year, or the beginning of the next.   And I don't see how the UK will avoid recession in this morose macroeconomic setting.   The British pound didn't find an army of buyers after the UK inflation report yesterday. After an initial attack on the 1.28 resistance, Cable came back to pre-data levels and even traded at five-session lows. The EURGBP made a sharp U-turn from a nearly oversold market and jumped above 0.86. There is room for a hawkish surprise from the BoE (a 50bp hike?), and if not today, in one of the next meetings. The latter should keep Cable on path for more gains, in the actual environment of softening US dollar.    Let's see what's the new Team is worth!  The new leadership team of the Central Bank of Turkey (CBT) will give the first policy verdict of its new mandate today. The bank is expected to hike the rates from 8.5% to 20%. It looks like a big hike – and it is a big hike – but the Turkish Central Bank will have to   1. regain its credibility that has been shattered   2. repeat a similar operation in the next few meetings to bring the Turkish rates to where they should be in accordance with the economic fundamentals, and not where the government wants them to be.   3. if all goes well, get rid of the expensive and ineffective side measures – like FX interventions and FX protected savings – that served to keep the lira afloat while the monetary policy was no longer.   The USDTRY is again put to sleep near the 1.23 level after a tentative relaxation of FX interventions at the start of this month. Hiking interest rates, regaining credibility, then relaxing FX interventions sounds like a plan, but it will take ZERO verbal intervention from the government to conduct a healthy policy normalization.   Note that, in no case, do I expect the selloff in lira to stabilize or the reverse – without external intervention – below the 30/35 range – if left free.    Swiss will hike as well The Swiss National Bank (SNB) is about to announce a 25bp hike at today's meeting taking the Swiss policy rate to 1.75%. The dollar-franc sees resistance into the 0.90 psychological level, but most of the price action is driven by USD appetite. Given the sharp fall in Swiss inflation toward the 2% target, the SNB will unlikely let the franc run too strong from here. 0.88 seems to be a floor to franc appreciation.    

Australian inflation expected to slow in May The inflation report will have a significant impact on RBA decision in July The Australian dollar is in positive territory on Tuesday. AUD/USD rose as high as 50 pips earlier but has pared these gains and is trading at 0.6685, up 0.16%. The Australian dollar is showing some life after last week’s awful performance, in which it declined by 2.87%.   Markets eye Australian CPI On Wednesday, Australia releases the monthly inflation report for May. Inflation is expected to ease to 6.1% y/y, down from 6.8% in April. If the consensus is accurate, this would mark the lowest inflation level since March. The Reserve Bank will be keeping close tabs on the inflation release, especially core CPI, which is a more accurate gauge of inflation trends. The core rate fell from 6.9% to 6.5% in April, but that is incompatible with a 2% inflation target, and the RBA will need to see core inflation fall much more quickly before it can think about winding up the current rate-tightening cycle. The markets have priced in a rate pause from the Reserve Bank of Australia at 77%, and a significant drop in inflation on Wednesday should cement a pause at the July meeting. The RBA surprised the markets earlier this month when it raised rates by 25 basis points, bringing the cash rate to 4.35%. The minutes of the meeting indicated that the decision to hike was close, and a key factor in the decision was concern over persistently high inflation. The central bank is well aware of the pain inflicted on households and businesses due to rising rates, and a pause in rate hikes would provide some relief, as well as allow the RBA to monitor the effects of its rate policy. At the same time, the central bank has made it absolutely clear that its number one goal is curbing high inflation, which means Wednesday’s inflation release could have a significant effect on the direction of the Australian dollar.   AUD/USD Technical AUD/USD put pressure on resistance at 0.6729 in the Asian session. Above, there is resistance at 0.6823 0.6598 and 0.6518 are providing support    

Lagarde signals ECB rate hike in July Germany releases inflation report later on Thursday Eurozone inflation report follows on Friday EUR/USD is unchanged on Thursday and is trading at 1.0912 in the European session,   German CPI  Germany releases the June inflation report later today. Inflation in the eurozone’s largest economy fell to 6.1% in May, down sharply from 7.2% in April. Much of the decline, however, was driven by lower energy prices. Inflation is expected to head higher, with a consensus of 6.3%. If CPI surprises to the downside, the euro could get a boost.   Lagarde signals rate hike in July Investors were hoping to gain some insights this week from ECB President Lagarde, who hosted the ECB Bank Forum in Sintra. There really wasn’t anything new in her remarks, which may have been disappointing to some. One could make the argument that Lagarde is being consistent in her message to the markets and used the Sintra meeting to reiterate the ECB’s intent to raise rates at the July 27th meeting, unless there is an unexpected drop in inflation, in particular the core rate. Lagarde stated on Wednesday that the central bank is not considering a pause in July as things currently stand. At the same time, Lagarde has some wiggle room, as she has said each rate decision will be data-dependent. The ECB has an entire month before the next meeting, and if core inflation slides or the eurozone economy takes a turn for the worse, the ECB could pause, arguing the conditions were appropriate for holding rates steady. Lagarde & Co. will get a look at eurozone inflation data on Friday. Headline inflation is expected to fall to 5.6% in June, down from 6.1% in May. Core CPI is projected to rise from 5.3% to 5.5%.   EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0916. This is followed by 1.0988 1.0822 and 1.0750 are providing support    

Japan releases Tokyo Core CPI on Friday USD/JPY moves closer to symbolic 145 line Ueda says no changes to policy unless core inflation rises USD/JPY has edged lower on Thursday. In the European session, the yen is trading at 144.19, down 0.20%. The yen dropped as low as 144.70 in the Asian session, as the symbolic 145 line remains under pressure.   Tokyo Core CPI expected to tick higher Japan releases a key inflation indicator, Tokyo Core CPI, on Friday. The indicator dipped to 3.2% in May but is expected to inch up to 3.3% in June. Tokyo CPI excluding food and energy, currently at 2.4% and known as the “core core index”, will be under the microscope after the National “core core index” rose unexpectedly in June. Earlier this week, BoJ Core CPI, the preferred inflation gauge of the central bank, rose from 2.9% to 3.1%, above the consensus of 3.0%. If today’s inflation report also shows that inflation is creeping higher, it will put into question the BoJ’s stance that cost-driven inflation is temporary and therefore there is no need to tighten monetary policy. Governor Ueda reiterated this position at the ECB Bank Forum on Wednesday. Ueda stated that he would continue the BoJ’s ultra-easy monetary policy unless he was “reasonably sure” that inflation accelerated in 2024. He said that the BoJ was not confident that this would occur, noting that even though headline inflation was above 3%, core inflation remained below the Bank’s 2% target. The BoJ’s ultra-accommodative policy has seen the yen slide to 7-month lows, which has drawn warnings from the Ministry of Finance about intervening in the currency markets. Ueda declined to comment on the possibility of intervention, saying that the BoJ was closely monitoring the exchange rate and that the yen was influenced by many other factors besides BoJ policy.     USD/JPY Technical There is resistance line at 144.65 and 145.36 143.94 and 142.94 are providing support  

European stocks are ending the week on a high, buoyed by another encouraging inflation report that will soon support the end of the ECBs tightening cycle. Not only did the headline HICP rate fall further than expected, but the slight rebound at the core level – driven largely by unfavourable base effects, largely attributed to German transport subsidies last year – was lower than expected.   ECB policymakers will not get complacent on the back of today’s data but with inflation expected to fall further in the months ahead, core included later in the third quarter, we could well see a pause in rate hikes before the fourth quarter. This may enable the soft landing policymakers have been hoping for, with very shallow recessions a small cost to pay for price stability. ​ The unemployment rate staying at 6.5% as the number of unemployed fell slightly will keep ECB hawks on edge for signs of labour market tightness driving sustained excessive wage growth, but those fears should also subside over the coming months. A rate hike in July looks highly likely on the back of recent ECB comments, particularly those after the meeting this month, but beyond that investors aren’t convinced thinking another is more likely than not but by no means guaranteed.   Bitcoin steady after ETF surge Bitcoin is back in the green today but remains in the $30,000-$31,000 range it’s traded largely within over the last week. The ETF filings have given it some very positive momentum even with SEC lawsuits hanging over the industry. A break above $31,000 could see it accelerate higher once more with $32,500 potentially offering the next test.  

The first half of the year was rather choppy for the US dollar as massive bets of weakness were scaled down.  Many on Wall Street expected the dollar to weaken as most of the other major currencies were about to deliver significantly more tightening.  Regional growth rotations on an improving outlook from a roaring Chinese economy were also supposed to support the case for strengthening commodity demand. The dollar might be positioned for a little more short-term strength here as the odds for more rate hikes have steadily increased while rate cut bets get pushed into next year.  The Fed’s higher for longer stance on rates seems to slowly be winning over some traders. Macro traders will undoubtedly be following the NFP report, but may fixate over next week’s inflation report.  We could actually get a soft report that gives us a  headline 2.9% year over year reading.  The June inflation report might be a short-term bottom for the disinflation process as the base effects will be responsible for a large part of the decline.  By the end of summer, inflation might prove to be sticky given the current drivers, which includes economic resilience, a strong labor market, and decent spending.   USD/JPY Sell signals are emerging and intervention talk is brewing given we are at levels that triggered Japanese intervention last year.  Many yen traders are focused on the 145.50 region and the 143.75 level.  Technical traders that follow DeMark indicators are eyeing a potential sell countdown, which would require a drop below the 143.90 level.  If prices closed above the 145.51 level, further upside could target the 150 zone.  Last year, the Demark countdown finished in mid-July and it soon saw an over 6% drop.    

EIA Crude Oil Inventory Report expected at 11am EST. **Note API reported 4.4million draw last night. Fed’s rate path remains key for gold traders Bitcoin momentum capped on rising expectations BlackRock will get a US Bitcoin ETF approved Oil  Crude prices got a boost after the API report showed stockpiles declined by 4.4 million barrels per day. Energy traders are watching a tug-of-war between bullish bets that stem from expectations that OPEC+ will keep this market tight and as global recession fears grow.  Oil will struggle here if global economies continue to drag here. It seems the news flow is steadily turning to sluggish economic growth and that is bad news for the crude demand outlook. If the next week of economic data suggests the US economy is quickly slowing down, that might trigger a weaker dollar but also calls for a much weaker consumer.   WTI crude looks like it might be stuck in a range a little longer until inventory trends become a little bit clearer.       Gold Gold prices are wavering as global central bank tightening is dragging down stocks.  Gold is starting to see some safe-haven flows despite a global bond market selloff as investors start to plan for medium term dollar weakness.  Gold looks like it might be able to stabilize above the $1900 level even if Wall Street starts to think that the September FOMC will be a live meeting.  Bearish dollar views are growing and that should become stronger once we next week’s inflation report.      Bitcoin  Bitcoin hovers around the $31,000 level as optimism grows that BlackRock will get their Bitcoin ETF done.  BlackRock CEO Larry Fink told Fox Business that “We do believe that if we can create more tokenization of assets and securities – that’s what bitcoin is – it could revolutionize finance.”  This is a major pivot from Fink and provides optimism that other crypto skeptics could change their tune in the near future.   Bitcoin appears to be facing some price barriers ahead of the $32,000 level.  Bitcoin’s performance is gaining attention given some of the weakness that is emerging with global equities.  For the Bitcoin rally to continue, we will need to get a confirmation that the SEC will grant permission for a spot-Bitcoin ETF in the US. Bitcoin remains stuck in a range again, trading between $28,000 and $31,500.       

FOMC minutes highlight policy divisions USD/JPY falls sharply Japan releases Household Spending and Average Cash Earnings on Friday The Japanese yen is showing strong gains on Thursday. In the European session, USD/JPY is trading at 143.82, down 0.57%.   Fed minutes point to disagreement over rate path The Federal Reserve has been aggressively tightening rates in order to curb inflation but took a pause in June after ten consecutive hikes. At the meeting, the Fed said that a pause would provide members with time to assess the impact of the hikes, which have amounted to some 500 basis points. The minutes of the June meeting were significant in highlighting that Fed members were in disagreement about the decision to pause rates. The decision to pause may have been unanimous, but the minutes made it clear that there was a difference of opinions, with some members preferring a hike but reluctantly agreeing to a pause. There was also disagreement over the pace of tightening in the second half of the year, with 16 of 18 members expecting at least one hike and 12 members expecting two or more hikes. After the minutes, the money markets slightly raised the probability of a 0.25% hike in July from 86% to 91%, according to the CME FedWatch tool. The pricing could continue to change, with two key reports ahead of the July meeting. The non-farm payrolls report will be released on Friday. Job growth is expected to have cooled to 225,000 in June, down sharply from 339,000 in May. This will be followed by the June inflation report next week, with headline inflation expected to fall from 4.0% to around 3.0%. Japan releases Household Spending and Average Cash Earnings on Friday. Household Spending declined by 4.4% in April and another decline of 2.4% is expected for May, as inflation has dampened consumer spending. Average Cash Earnings gained 1% in May and the consensus for June stands at 0.7%. . USD/JPY Technical There is resistance at 145.28 and 146.23 144.11 is a weak support level. The next support line is 143.16  

Asia Morning Bites Monday features China's inflation report which should show both CPI and PPI reflecting weak demand.   Global Macro and Markets Global markets:  US equities didn’t much like Friday’s labour market report, though they didn’t hate it either. The S&P 500 fell 0.29% while the NASDAQ lost 0.13%. US equity futures are looking a little brighter currently. Chinese stocks also had a disappointing end to the week. The Hang Seng fell 0.9% while the CSI 300 dropped 0.44%. US Treasuries were also a little unsure how to react to the labour report. The yield on 2Y US Treasuries fell 3.5bp, but yields on the 10Y UST rose 3.2bp to 4.062%. The USD weakened against the EUR on Friday. EURUSD rose to 1.0964. Other G-10 currencies were also strong, including the JPY, which has tended to strike its own path recently. USDJPY has fallen to 142.22. Friday was a mixed day for the Asia FX pack. The CNH made some modest gains, falling to 7.2328, but most of the rest saw modest losses, which they may well recoup in early trading today. G-7 macro:  The US labour report on Friday showed some welcome signs of slowdown in hiring, especially after the much stronger than expected ADP survey earlier had increased anxiety about a much bigger number, but it was a very mixed story, with a falling unemployment rate, and sticky wages all indicating that the Fed will be hiking again in July. James Knightley provides more detail in this note. In terms of the numbers, non-farm payrolls rose 209 thousand, the unemployment rate declined from 3.7% to 3.6%, and average hourly wages growth was unchanged at 4.4% YoY. There isn’t much on the G-7 calendar of note today. China: PPI data for June will likely show a further deterioration from the -4.6% YoY May figure, weighed down by weak demand. Aggregate finance data is released this week, possibly as soon as today. We should see an increase over the May figure of CNY1362bn, but probably less than last year’s June number of CNY2806bn. The consensus estimate is about CNY2300bn.   What to look out for: China inflation China CPI inflation (10 July) Japan trade balance (10 July) US wholesale inventories (10 July) Australia Westpac consumer confidence and NAB business confidence (11 July) Philippine trade (11 July) South Korea unemployment (12 July) Japan PPI inflation (12 July) New Zealand RBNZ policy (12 July) India CPI inflation (12 July) US MBA mortgage application, CPI inflation (12 July) South Korea trade and BoK policy (13 July) China trade (13 July) US PPI inflation (13 July) Singapore GDP (14 July) Japan industrial production (14 July) India trade (14 July) US import prices and University of Michigan sentiment (14 July)

FX Daily: Short-term dollar bearishness remains unconvincing We remain a bit reluctant to chase the dollar lower. The greenback still has to catch up with recent market dynamics – higher US rates in particular – and the scope for further dovish repricing in the USD curve is not broad. This week’s US CPI is undoubtedly a risk event, but we don’t see a EUR/USD move above 1.1000 as being very sustainable just yet.   USD: Room for a rebound Last week saw the dollar trade on the soft side amid mixed data from the US. The latest and most important release, the US payrolls figures for June, came in a bit weaker than expected, but the jobs market likely remains too tight for the Fed to backtrack on a July hike. After all, the headline print was solid (+209k) and with wages remaining high and unemployment moving lower, there aren’t many strong dovish arguments to be extrapolated from the June jobs report. We are still reluctant to chase the dollar lower from this point – not particularly because we expect incoming data (US CPI above all) to surprise on the upside, but because the dollar still has to catch up with some recent market dynamics. Front-end US treasuries arrested their selloff, but remain very close to 5.0%, and 10Y UST are at the 4.0% benchmark level. Equities have also shown some signs of instability since the start of July. All of this should, in theory, put the dollar in a solid position to rebound from the current levels – especially given there isn’t much room for a further dovish re-pricing in the USD swap curve. That currently factors in 35bp of tightening to the peak, still short of the 50bp signalled by the Fed in the latest dot plot. The big risk event for the dollar this week is the June inflation report on Wednesday. Our economist expects a consensus 0.3% month-on-month core read, which should keep providing encouraging news on the disinflationary story – but should still fall short of tweaking the Fed narrative or convincing markets to price out a July hike. A downside inflation surprise could see DXY test the 101.00 April lows, but we think that the dollar could instead find some support into the CPI release and stabilise in the second half of the week. Today’s calendar includes some Fed speakers: Michael Barr, Mary Daly, Loretta Mester and Raphael Bostic. Elsewhere, we expect the Bank of Canada to hike by 25bp this week. This is far from a consensus view, with the pool of economists split between a hold and a hike and markets pricing in around 67% of implied probability of an increase. We explain our reasons in our latest Bank of Canada meeting preview.

Wednesday’s inflation report expected to show CPI m/m: 0.3%e  v 0.1% prior; y/y: 3.1%e v 4.0% prior; Core CPI m/m: 0.3%e v 0.4% prior; Core CPI y/y: :5.0%e v 5.3% prior Fed’s Barr on banks: These changes would increase capital requirements overall Fed Mester noted that the funds rate will need to move up somewhat further from its current level and then hold there for a while   US stocks are wavering ahead of both a key inflation report that should core CPI remain sticky and what should be a rough earnings season. Friday’s employment report showed a hiring slowdown but also strong wage gains.  What will make this inflation report exciting is that we could see annual headline inflation fall to 2.8%, while core inflation remains hot, bolstered by housing inflation.  The steep decline in annual CPI won’t remain a recurring theme and pricing pressures might remain throughout the summer.  The big banks will kickoff earnings season and expectations are for the largest loan losses since the pandemic. Considering how high stocks have rushed higher, it will be difficult for this earnings season to deliver strong enough results for fresh highs.  China’s growth story remains a drag on the global economy.  Perhaps more important for markets was last night’s Chinese prices data.  China saw CPI post the lowest reading in 2 years, with a 0% year-over-year reading, while producer prices plunged 5.4% from a year earlier, the worst decline since December 2015.  It is getting uglier in China and that is why officials are scrambling to deliver more support to real estate developers.  The real estate crisis has been lingering for a couple of years and it is messing up their COVID reopening.  The PBOC is going to do more, but this piecemeal policy support strategy is not working.  Treasury Secretary Yellen’s trip to Beijing was positive but nothing meaningful was expected to be achieved. Yellen assuaged concerns that harsh restrictions might not get imposed by both countries.  The US needs China’s rare minerals and China needs foreign chips.    

US June CPI M/M: 0.3%e v 0.1% prior; Y/Y: 3.1%e v 4.0% prior; Core CPI (ex food and energy)M/M: 0.3%e v 0.4% prior; Y/Y: 5.0%e v 5.3% prior Microsoft gets go-ahead to buy Activision; prompts excitement for further deal making. Impressive demand for 3-year note auction US stocks rose as bond yields remained capped as Wall Street looks like it is ready to move beyond a pivotal inflation report that should suggest interest rates will stay higher for longer. ​ Headline CPI might fall to 2.9% and core could see the lowest reading since 2021, but sticky inflation signs will likely remain. ​ Stock market sentiment also got a boost as profit estimates for JPMorgan eye another strong quarter. ​ Citigroup and Wells Fargo are expected to post weaker profits. ​ Broadening strength is also exciting the stock market bulls as cyclicals performed well. ​ In order for stocks to continue on rising, Wall Street just can’t rely on the AI trade.   UK Wages are too hot ​The BOE is going to have a tough decision with the August 3rd policy meeting as hot wages should keep the bets going for further tightening. ​ Weekly earnings at 7.3% matched last month’s, which was also the record high seen in mid-2021. ​ The case for the BOE to hike by 50bps got a lot stronger and that has helped take the British pound to a 15-month high against the dollar. ​   Oil market to remain tight Crude prices are getting a boost as expectations grow for the oil market to remain tight despite all lingering growth concerns. ​ The IEA expects strong demand from China and developing nations. The short-term crude demand outlook shouldn’t be that bad as everyone is taking a vacation that requires some travel this summer. WTI crude has a solid floor in place and it will take a lot to go wrong for oil prices to lose its footing. ​   Gold tries to shine Gold hit a 3-week high but traders won’t see an extension of this rally until we get beyond the inflation report and possibly some bank earnings. ​ Gold bulls want to see inflation expectations to continue to tumble. ​ Tomorrow’s inflation report if cooler than expected could help gold find a home above the $1950 level. ​ ​ ​ What might prove troubling for gold is what is shelter disinflation. ​ Shelter prices are coming down, but not quickly enough and in several cities, rents are still increasing. ​ Gold will have to fight more hawkish Fed speak, but for now it seems the $1900 level could hold. ​  

New Zealand’s central bank takes a pause after 12 consecutive hikes New Zealand Manufacturing PMI expected to show manufacturing is stalled US inflation expected to decline to 3.1% The New Zealand dollar showed some gains after the Reserve Bank of New Zealand paused rates, but has given up most of those gains. In the European session, NZD/USD is trading at 0.6206, up 0.14%.   RBNZ takes a breather There was no dramatic surprise from the RBNZ, which kept interest rates on hold at Wednesday’s meeting, as expected. The central bank has been aggressive, raising rates 12 straight times since August 2021 until Wednesday’s meeting. This leaves the cash rate at 5.50%. The RBNZ had signalled that it would take a break, with Deputy Governor Hawkesby stating last month that there would be a “high bar” for the RBNZ to continue raising rates. Today’s rate statement said that interest rates were constraining inflation “as anticipated and required”, adding that “the Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.” The RBNZ did not issue any updated forecasts or a press conference with Governor Orr, which might have resulted in some volatility from the New Zealand dollar. The central bank has tightened rates by some 525 basis points, which has dampened the economy and chilled consumer spending. Is this current rate-tightening cycle done? The central bank would like to think so, but that will depend to a large extent on whether inflation continues to move lower toward the Bank’s inflation target of 1-3%. The pause will provide policymakers with some time to monitor the direction of the economy and particularly inflation. If inflation proves to be more persistent than expected, there’s every reason to expect the aggressive RBNZ to deliver another rate hike later in the year. New Zealand releases Manufacturing PMI for June on Wednesday after the rate decision. The manufacturing sector has contracted for three straight months, with readings below the 50.0 line, which separates contraction from expansion. The PMI is expected to rise from 48.9 to 49.8, which would point to almost no change in manufacturing activity. The US will release the June inflation report later in the day. Headline inflation is expected to fall from 4.0% to 3.1%, but core CPI is expected to rise to 5.3%, up from 5.0%. If core CPI does accelerate, that could raise market expectations for a September rate hike. A rate increase is all but a given at the July 27th meeting, with the probability of a rate hike at 92%, according to the CME FedWatch tool.   NZD/USD Technical 0.6184 is a weak support level. Below, there is support at 0.6148 0.6260 and 0.6383 are the next resistance lines  

The recent US Consumer Price Index (CPI) reading has ignited discussions and speculation regarding the future monetary policy of the Federal Reserve. Traders and investors have closely scrutinized the implications of this report, seeking insights into the direction of interest rates and the overall stance of the central bank. To gain further perspective on the matter, we reached out to Matthew Ryan, CFA, an expert in the field, for his analysis. Ryan emphasizes that the US dollar experienced a widespread sell-off in response to the soft US inflation report. The June data revealed a significant easing of headline inflation, reaching its lowest level in over two years. Equally notable was the unexpected drop in the critical core index, falling below 5% for the first time since November 2021, marking a significant turning point.     The dollar selling off across the board after soft US inflation report intensified bets that the Federal Reserve's rate hike cycle may soon be nearing an end. Headline inflation eased sharply in June, falling to its lowest level in more than two years, while the critical core index also unexpectedly dropped below 5% for the first time since November 2021 - somewhat of a watershed moment.   The retreat in the sticky core inflation measure will be particularly welcome news for the Fed, as it suggests that the bank's ultra-aggressive tightening cycle is finally bearing fruit. There remains a long way to go before underlying price pressures return to target, though the notion that almost all metrics of US inflation are trending in the right direction will be highly comforting for officials.     Recent hawkish communications from FOMC officials, including chair Powell, suggest that another 25 basis point rate hike remains highly likely later this month. We are, however, of the opinion that additional hikes beyond then are far from guaranteed, and are increasingly confident in our call that the July hike will be the last in the current cycle, before rate cuts commence at some point in H1 2024. We think that this dovish pivot should open the door to additional downside in the US dollar in the coming months.    - Matthew Ryan, CFA    

Analyzing Friday's trades: EUR/USD on 30M chart   The EUR/USD pair took a breather and traded flat on Friday. Let's refresh our memory a bit: the pair has been rising all week, in most cases without any apparent reasons, and on Friday, it failed to show even a bit of a correction! That's all you need to know about the current movement. The demand for the euro is as strong as it is unfounded. Throughout the week, the market desperately reacted to the inflation report. At least, that's the only assumption we can make because there were no other important events or reports. Moreover, the reaction to the US inflation began as early as Monday (two days before its release), and it continued on Thursday (one day after the release). Even the FOMC meetings had a much weaker impact. Nevertheless, the uptrend persists, supported by the trend line. Therefore, it would be wise not to consider short positions in the medium term until the price firmly breaks below this line (with the exception of intraday trading with strong signals).   EUR/USD on 5M chart   Several entry signals materialized on the 5-minute chart, which is completely normal for a flat market. Throughout the day, the price crossed the distant level of 1.1228 five or six times. Naturally, in a flat market, all trading signals turned out to be false. Beginners could only execute the first two signals. In the first case, the price moved in the right direction for about 15 pips, which was enough to set a stop loss at breakeven, but not in the second case. Thus, the day turned out to be not the most successful, but what could one expect when volatility was only 40 pips and there were no important reports or events?   Trading tips on Monday:   On the 30M chart, the pair continues to form an uptrend. On Friday, there was an excellent opportunity for a slight correction with an empty event calendar, but the market did not take advantage of it. Therefore, the euro may extend its upward movement for the rest of the week. The key levels on the 5M chart are 1.0871, 1.0901, 1.0932, 1.0971-1.0977, 1.1038, 1.1091, 1.1132, 1.1184, 1.1279-1.1292, 1.1330, 1.1367. A stop loss can be set at a breakeven point as soon as the price moves 15 pips in the right direction. On Monday, there are no important reports or events lined up in the US or the euro area, so we can see any type of movement. It is highly likely to be a flat, but we may well see both an increase and a correction.   Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.      

US retail sales dip, core retail sales rise UK inflation expected to fall The British pound has edged lower on Tuesday. In the North American session, GBP/USD is trading at 1.3038, down 0.27%.     UK inflation expected to fall The UK is lagging behind other major economies in the fight to curb inflation. Will Wednesday’s inflation report bring some good news? In May, CPI remained stuck at 8.7% y/y but is expected to ease to 8.2% in June. The core rate is expected to remain steady at 7.1%. On a monthly basis, headline CPI is expected to fall from 0.7% to 0.4% and the core rate is projected to slow to 0.4%, down from 0.8%. The inflation report could be a game-changer with regard to the Bank of  England’s meeting on August 3rd. The BoE delivered an oversize 50-basis point hike in June and will have to decide between a modest 25-bp hike or another 50-bp increase at the August meeting. Last week’s employment report pointed to wage growth picking up, which moved the dial in favour of a 50-bp increase.   US retail sales report a mixed bag US retail sales for June provided a mixed spending picture. Headline retail sales rose just 0.2% m/m, below the 0.5% consensus estimate and the upwardly revised May reading of 0.5%. Core retail sales were much stronger at 0.6%, above the 0.3% consensus and the upwardly revised May release of 0.3%. The data points to resilience in consumer spending although momentum has slowed. The retail sales report did not change expectations with regard to rate policy, with the Fed expected to raise rates in July and take a pause in September. The Fed has tightened by some 500 basis points in the current rate-hike cycle and this has curbed inflation, which has fallen to 3%. Nevertheless, the Fed remains concerned that the solid US economy and a tight labour market will make it difficult to hit the 2% inflation target, and the Fed hasn’t given any hints that it will wrap up its tightening in July, although the money markets appear to think this is the case.   GBP/USD Technical GBP/USD has support at 1.2995 and 1.2906  There is resistance at 1.3077 and 1.3116    

EUR/USD excessively overbought? The euro-dollar ascent was mostly a one-way move for most of July.  After inflation eased to the slowest pace in more than two years, the dollar tumbled.  With the Fed entering their blackout period before the July 26th FOMC meeting, the lack of hawkish pushback has allowed the dollar to remain vulnerable to further pain just ahead of the 1.1300 handle.  Bullish momentum has cleared multiple hurdles but the 1.1350 level should prove to be rather strong. While the end of the Fed’s tightening cycle appears to be in place, expectations are shifting that the ECB might not be that far from pausing their rate hiking cycle.  Today’s comment from ECB’s Knot, a well-known hawk, suggested that they could be ready to pause in September and that it might hinge on the inflation data going forward. All eyes will be on the Wednesday’s second reading of euro-area inflation. The EUR/USD daily chart displays a potential bearish butterfly pattern. Point D is targeted with the 1.414 1.414% Fibonacci expansion level of the X to A move and the B to C leg.  If dollar strength emerges here, downside could target the 1.1050 level. If invalidated, bullish momentum could surge above the 1.1300 region, potentially targeting the 1.1450 resistance zone.     USD/JPY dead-cat-bounce or sustainable rally? The plunge for dollar-yen accelerated after last week’s cooler-than-expected inflation report shifted Fed rate hike expectations. The macro backdrop has mostly seen investors calling for pain for the Japanese yen since 2021.  Hedge funds ramped up bearish yen bets(according to the COT report for the week through July 11th), taking their net short positions to the largest level since last May. Now the focus also includes the BOJ, which includes some disappointment with keeping the BOJ keeping Yield Curve Control intact. Yen volatility could remain excessive if the Fed signals more tightening might need to be done after the July 26th FOMC meeting and if BOJ doesn’t tweak their policy. Over the next couple of weeks, it seems that the yen rally will either cool towards 141.50 (a temporary recovery) or we will see it surge below 136.00 (the downtrend remains in place).        

TRY: Further moves towards policy orthodoxy In a further move towards policy orthodoxy, yesterday the Central Bank of Turkey presented its latest inflation report which saw its 2023 inflation forecast double. Our chief economist in Turkey, Muhammet Mercan, wrote a detailed review of this report here. The new inflation forecasts take on board developments in Turkey this year and have generally been received positively by the markets. In addition, three new deputy governors were appointed to the CBT last night – a move we also suspect will be welcomed by the markets. Clearly, the very high inflation in Turkey will pose many challenges to Turkish asset markets amidst this transition to policy orthodoxy, but this week's developments look consistent with the recent narrowing of Turkey's sovereign risk premium, where the five-year sovereign Credit Default swap dipped from 700bp in May to 430bp this week.

Eurozone core inflation surprises on the upside Eurozone GDP accelerates to 0.3% The euro is showing little movement on Monday. In the North American session, EUR/USD is trading at 1.1023, up 0.06%. It has been a wild ride for the euro over the past two weeks. On July 18th, EUR/USD hit its highest level since February 2022, but the same day, the euro began a slide which saw it drop almost 300 points. Interestingly, the euro had a muted reaction to Monday’s eurozone inflation and GDP reports. Eurozone inflation for June was within expectations. Headline CPI dropped from 5.5% to 5.3% y/y, matching the consensus estimate. Core CPI remained steady at 5.5%, a notch higher than the consensus of 5.4%. Core CPI, which is closely watched by the ECB, hasn’t improved much from the 5.7% gain in March, which marked a record high. The inflation report shows that inflation remains stubbornly high, and will provide support to ECB members who favor a rate hike at the September meeting. The ECB raised interest rates last week, which came as no surprise as the ECB had signalled that it would do so. What happens next is anyone’s guess. ECB Lagarde said at last week’s meeting that “the September meeting will be deliberately data-dependent”. This didn’t clear up any uncertainty or really say anything, as the ECB has abandoned forward guidance and made rate decisions based on key data, especially inflation and employment reports. The ECB could go either way in September – inflation remains well above the 2% target, which would support a hike, but the eurozone economy remains weak and some members may wish to pause in order to avoid a recession. There was a bright spot in Monday’s releases as eurozone GDP rose to 0.3% in the second quarter, up from 0.0% in Q1. We’ll get a look at German and eurozone Manufacturing PMIs on Tuesday. EUR/USD Technical EUR/USD is testing resistance at 1.1037. The next resistance line is 1.1130 There is support at 1.0924 and 1.0831    

Romanian National Bank preview: on autopilot for a while The Romanian National Bank (NBR) will announce its latest policy rate decision on 7 August. We expect the key rate to be maintained at 7.00% with no forward guidance. A new Inflation Report will be approved and presented a few days later which should largely confirm the central bank's previous inflation forecasts. With the inflation dynamic largely matching the NBR’s expectations, the central bank’s focus might shift a tad from inflation to growth, with the latter starting to give more and more credible signs of slowing down rather abruptly. Having said that, there is actually not much that the NBR can do here on top of what has been done already, which was to allow a hefty liquidity surplus in the money market and make the deposit facility the de-facto policy rate. Given that there are still no depreciation pressures for the Romanian leu, it is likely the current policy stance will be extended well into the year-end.   Persistent liquidity surplus   A new Inflation Report should reconfirm the previous forecasts Maybe more interesting than the monetary policy decision itself will be the presentation of the May Inflation Report which should take place a few days later and incorporate the NBR’s latest inflation projections. It is most likely to be the second report in a row which doesn’t differ much from the previous forecasts. The NBR currently sees CPI inflation at 7.1% in December 2023 and 4.2% in December 2024, not far from our estimates of 6.9% and 4.1% respectively. We might see the official forecasts getting into the 1.5-3.5% target range at the end of the two-year forecast horizon, while in our scenario it looks most likely to hover around 4.0%. Moreover, core inflation could prove stickier and remain above the headline figure for most of this timeframe.   Stickier core inflation   We believe that the NBR will stay on course on 7 August and for the rest of the year, despite the more frequent dovish statements coming from other central banks in the region. We maintain our view of a first rate cut in the first quarter of 2024 with a key rate of 5.5% by the end of 2024. The easing cycle will be justified by the lower inflation but likely tempered by core and regional yields, as the interest rate differential cannot narrow excessively. On the domestic front, the new fiscal measures announced in order to contain the budget gap are unlikely to meaningfully change the situation on the issuance front, where the Ministry of Finance is in a comfortable position (more on this here).   What to expect in FX and markets The liquidity surplus fell only marginally in June, remaining at a near-record RON25.2bn, indicating scant central bank activity. EUR/RON briefly broke through 4.920 last week, again likely due to high demand for Romanian government bonds (ROMGBs) and has been higher since but still well below any line in the sand set by the central bank. FX implied yields have also risen a bit in the last two months but still remain firmly anchored. We expect the NBR to take the opportunity to withdraw some liquidity from the market if EUR/RON moves higher. In the long term, we expect the NBR to move the bar up for EUR/RON at least once more and we should see the 5.02 level by the end of the year. ROMGBs eased the pressure a bit in July and we see current valuations as more justified. The spread against Polish government bonds has returned above 100bps in the 10y tenor and even against other CEE peers, the levels seem more fair. The funding story remains unchanged. According to our calculations, the MinFin has secured about 82.5% of this year's planned issuance, the highest figure in the CEE region. We also saw strong activity in retail issuance in July, making the overall funding situation the best in the region. On the other hand, we see potential incoming problems on the fiscal side. The government is discussing further measures to improve the state budget and we should hear more in the coming days. Despite the fiscal issues, we should see a reduction in the supply of ROMGBs. However, we expect MinFin to want to stay on the safe side given the uncertainty and if market demand continues the MinFin will be open to issue more than indicated.

US Everyone will be watching the US inflation report as a cool report could help support soft landing hopes and seal the deal for some that the Fed is done raising rates. Expectations for the July inflation report is for headline inflation to rise towards the mid-3% range, while core inflation remains steady and holding onto the lowest levels since 2021 on both a monthly basis at 0.2% and at 4.8% from a year ago.   Any hot surprises might bolster the case that the Fed may need to raise rates at the November meeting. Wall Street will pay close attention to Tuesday’s NFIB Small Business Optimism report and trade data. Thursday is all about the inflation report and the initial jobless claims. Friday contains the release of the PPI report and the preliminary University of Michigan Sentiment report/inflation expectations. Fed speak will also include appearances by Bostic and Bowman on Monday. Harker speaks on Tuesday and Bostic provides remarks on employment on Thursday. Earnings for the week include Alibaba Group Holding, Allianz, Bayer, Berkshire Hathaway, China Mobile, China Telecom, Eli Lilly, Honda Motor, Novo Nordisk, Palantir Technologies, Rivian Automotive, RWE, Saudi Arabian Oil, Siemens, SoftBank Group, United Parcel Service, and Walt Disney Eurozone Next week starts quickly on Monday with both Eurozone Investor Sentiment and German Industrial Production.  The August Sentix Eurozone sentiment reading should show confidence remains low in August, declining further from -22.5 to -25.0.   The June German industrial production data should show the manufacturing isn’t ready to rebound as expectations on a monthly basis are for a -0.5% drop, worse than the -0.2% prior reading. Weakening data points should support the view that inflation will slow significantly later this year. UK This week is all about growth and that is disappearing in the UK. Friday’s preliminary look at Q2 GDP is expected to show the economy is stagnating.  The consensus estimate for Q2 GDP is for a flat reading (consensus range of 0.0% to 0.1%), down from 0.1% in Q1.  The BOE is still likely to deliver more rate hikes, which should mean the UK economy is recession bound. Russia The CBR will have further pressure to keep on raising rates after a hot July inflation report.  Headline inflation in July is expected to jump from 3.25% to 4.25%, well above the 4% target.  At the end of the week, the release of the advance Q2 GDP reading is expected to show the economy rebounded from -1.8% to +3.3%. South Africa Next week mainly offers tier two and three economic data with both mining data and Manufacturing production results that are expected to show a modest rebound. Turkey A few economic indicators will be released this week, with the focus mainly on June Industrial Production, which should show activity turned negative. Switzerland Unemployment data on Monday is expected to show the labor market remains tight as the unemployment rate holds steady at 2.0%.  The focus remains on inflation for Switzerland and a strong labor market could keep wages strong and that should support the SNB case for a September hike. China Three key data to watch. On Tuesday, the Balance of Trade for July, another horrendous print is being forecasted for exports growth to plunge further to -14% year-on-year from -12.4% recorded in June If it turns out as expected, it will be the third consecutive month of contraction. Imports growth is forecasted to improve slightly to -5.2% year-on-year from -6.8% in June but still a potential fifth consecutive month of contraction. Overall, such forecasts are pointing to a continuation of weak internal and external demand that market participants are getting fatigued from China’s top policymakers’ ongoing stimulus rhetoric that is too vague and too minor in the past two months in order to boost domestic consumption and the languish property sector. Consumer inflation and producer prices data will be out on Wednesday. Higher odds of deflationary risk as the forecast is calling a negative reading on inflation at -0.3% year-on-year from 0% printed in June. Producer prices are forecasted to contract again to -5% year-on-year from -5.4% in June, a potential ten consecutive months of negative growth. On Friday, we will have outstanding loan growth and M2 money supply data for July. On the earnings front, Alibaba, one of China’s Big Tech will report its June quarter 2023 earnings results on Thursday, 10 August. Noteworthy to scrutinise Alibaba’s earnings and forward guidance as China policymakers have loosened their grip on the business operations of China’s Big Tech firms. India The key highlight will be RBI’s interest rate decision on Thursday where the consensus is expecting RBI to stand pat at 6.5%, a potential third consecutive of no change on the policy rate due to easing inflationary pressures. On Friday, industrial production for June will be out, and a drop in growth is being forecasted at 4.1% year-on-year from 5.7% in May, still a potential eight consecutive month of expansion. Australia A light data week ahead, Westpac consumer confidence for August out on Tuesday where a dip of -0.7% month-on-month is being forecasted from 2.7% printed in July. Lastly, consumer inflation expectations for August will be released on Thursday.     New Zealand Two data to take note of: electronic retail card spending for July out on Wednesday, and manufacturing PMI for July on Friday. Japan The Bank of Japan (BoJ) Summary of Opinions will be out on Monday and market participants will be scrutinising any hints on the next step in monetary policy normalisation in terms of timing and form as BoJ has indirectly revised upward on the upper limit of its Yield Curve Control (YCC) on the 10-year JGB yield to 1% during its last meeting in July. On Tuesday, we will have household spending for June where the consensus is expecting a slight contraction to -4.1% year-on-year from 4% in May but on a month-month basis, a recovery is expected at 0.3% in June from -1.1% printed in May. Bank lending data for July will be released as well on the same day. Singapore The only key data will be the Q2 GDP finalised reading out on Friday where the prior flash figures brushed away a recession scare as Q2 q/q and y/y came in positive at 0.3% and 0.7% respectively. Markets Energy Oil prices have remained supported by OPEC+, as they appear committed to keeping this market tight.  The upcoming week should have some of the focus shift back to demand.  On Monday, Saudi Aramco will post their earnings results.  Tuesday has two events, with the release of some key Chinese trade data, which includes oil imports and the US EIA Short-term Energy Outlook (STEO).  On Thursday, OPEC publishes their monthly report, while the EIA releases their monthly publication on Friday. Natural gas prices have also steadied in the US over cooler weather, while Europe continues to deal with a tight market over Norwegian outages. Gold After the Treasury’s quarterly refunding announcement, concerns grew over the US widening deficit.  Gold pared weekly losses as the bond market selloff saw some relief after the NFP report showed the labor market is softening. The focus next week will be all about US inflation and some major data out of China. Soft landing hopes remain, but that could get rattled if the disinflation process stalls. Crypto Bitcoin continues to consolidate below $29,000 as volatility struggles to return.  Bitcoin was little changed after both the Treasury quarterly refunding announcement and NFP report. Regulatory decisions and ETF rulings still remain the likely catalysts to trigger a meaningful crypto move.  

CEE: Inflation in Hungary finally below 20% Yesterday's meeting of the National Bank of Romania (NBR) was as expected and there were no surprises. Tomorrow, the NBR will present a new inflation report, however, for now we have silence from this side. This morning, July inflation in Hungary was released, posting a drop from 20.1% to 17.6% year-on-year. This is 0.1pp below market expectations and 0.1pp above central bank expectations. While inflation remains by far the highest in the CEE region, it is below 20% for the first time since last September and we expect it to be in single-digit territory by the end of the year. This is good news for the economy and the central bank, but also good news for the forint. Without many surprises, the market has no reason to push the central bank to cut rates faster, undermining the main attraction – FX carry. This, despite the decline in recent weeks, is one of the highest in the emerging market universe and by far the highest in the CEE region. Later today we will also get the Hungarian state budget result for July. The last two months show signs of stabilisation of the deficit at 85% of this year's target. State budgets are showing bad numbers across the region. However, in the Czech Republic, we have already seen the trend turn over, and in Romania, the government is trying to come up with a revision of the state budget in an attempt to keep the numbers under control. Today, we expect the deficit in Hungary to remain roughly unchanged. This should be good news for Hungarian government bonds. However, in case of a negative surprise, we could also see a spillover into FX due to the higher market attention. Moreover, this topic is of course linked to the EU money issue, which we expect to be back on the table in the coming weeks. So overall, everything revolves around the Hungarian forint at the moment. Values around 390 EUR/HUF open the question of whether we will hear some comments from the National Bank of Hungary, given that we are entering sensitive waters. Market positioning is probably rather balanced after the sell-off over the last few days, so we believe this leg of the move-up is over. But it is also hard to see a quick recovery. Despite a lot of local story, the correlation with the US dollar has been almost perfect for the past month. In other words, the main driver in our view is global factors and we don't see too much potential either way on this into US inflation numbers. So EUR/HUF may try to lower levels but we don't expect a big rebound after today's numbers.

Thursday’s inflation report to seal the deal for a Fed hold in September Treasury sells 10-year notes with strong demand as yields drop China deflation raises prospects of more stimulus USD/JPY rose after a strong auction signaled that Wall Street is very confident that inflation will continue to fall. It looks like investors will gladly be eating all the extra issuance that comes from the Treasury. After tomorrow, we will see if traders are nervous that inflation is proving to be a little sticky or overwhelming confident that inflation will fall to the Fed’s 2% target by year end.   Price action is tentatively breaking out above key trendline resistance that has been in place since the end of June.  Further upside for dollar yen could target the 145.00 level, which would be accompanied by some jawboning from Japan.  To the downside, 141.50 remains key support.   Risk appetite should remain healthy as deflation in China is also providing limited optimism that the more stimulus is coming and that disinflation pressures will steadily ease across Europe and North America.  Markets should see some lackluster moves until tomorrow’s US inflation report.       Oil Crude prices are rallying on expectations China will be forced to deliver more stimulus and after the EIA report showed an impressive rebound with diesel and gasoline demand.  The US is also refilling the Strategic Petroleum Reserve (SPR), so that should provide some underlying support. The SPR rose by almost 1 million barrels and should be poised to receive another 2 million before the end of summer. The EIA report was not all bullish as US production rose to the highest levels since March 2020 and crude exports fell to the weakest levels in four weeks. The oil prices should remain supported going forward as OPEC+ remains committed to keeping the market tight and as the Russia – Ukraine war could threaten Russian crude exports.   Gold Gold prices are weakening ahead of a pivotal inflation report that is expected to solidify a Fed hold in September.  Gold’s weakness occurs as Treasury yields edge lower, while European yields rise.  With a softer dollar, gold shouldn’t be weakening this much ahead of a key inflation report. Some big traders must be profit-taking over fears Wall Street will not react kindly to a slight rise with the headline annual inflation reading.      

Italy cushions windfall tax blow China deflation to spark stimulus efforts US five-year inflation breakeven nears peak set in April 2022 Yesterday, the euro took a big hit after Italian Premier Meloni’s cabinet approved a 40% levy on lenders’ extra profits.  Today was all about damage control as the Italian government had to tweak and ease up this crushing windfall tax on banks. The initial tax plan crushed the European banking sector, but that might see some relief now that the finance ministry clarified that the levy won’t surpass 0.1% of a firm’s assets and that banks who have delivered increased interest rates to depositors won’t be greatly impacted. The euro was steadying earlier, but a recovery of yesterday’s losses seems unlikely. The FX market appears to be struggling for major moves ahead of the US inflation report and that is somewhat surprising considering the deflationary numbers that came from China last night.  China saw both consumer and producer prices decline together for the first time since early in the pandemic.  China’s producer prices have been steadily dropping for 10th consecutive months, which should support disinflation hopes from most of the advanced economies.  China’s core CPI is still in positive territory, but that shouldn’t prevent officials from being a little bit more aggressive with stimulus. Even with China’s falling prices, some investors are still not yet confident that US inflation will come all the way down to the Fed’s target.  One of the long-term inflation gauges, the US five-year inflation breakeven remains elevated and close to the high made in April 2022.  Tomorrow’s inflation report could send this long-term measure above 2.5% or cool the steady rally that took hold since June.       Leading up to the US CPI report, EUR/USD has been consolidating between the 1.0920 and 1.1040 levels. Any significant upside surprises could support a stronger dollar, which could trigger a tentative break down below 1.0940 short-term support level.  An in-line inflation report could see the current trading range hold up, while a cooler-than-expected might support a rally towards the 1.1100 handle.      

US inflation accelerates by 3.2% UK GDP expected to rise 0.1% in Q2 The British pound showed some strength earlier but reversed directions and lost ground after the US inflation report. In the North American session, GBP/USD is trading at 1.2725, up 0.05%. US headline CPI rises, core rate ticks lower The US inflation report was somewhat of a mix, but most important was that both headline and core inflation were within expectations. This meant that the reaction of the US dollar was muted following the inflation release. Headline CPI climbed to 3.2% y/y in July, above the June reading of 3.0% but shy of the consensus estimate of 3.0%. This marked the first time in 13 months that headline CPI accelerated, but the upswing isn’t all that significant, as it was due to base effects. Core CPI ticked lower to 4.7% y/y in July, down from 4.8% in June. The Fed will be encouraged by the fact that on a monthly basis, both headline and core CPI posted a very modest gain of 0.2%, matching the estimate and unchanged from June. Inflation has fallen sharply in recent months, but the Fed will find it more difficult to bring core inflation down to the 2% target. The sharp drop in energy prices has sent headline CPI lower, but the core rate excludes food and energy prices. Inflation is being driven by services and wages, which explains why core CPI is so much higher than headline CPI. The inflation report has cemented the Fed holding rates in September, barring a huge surprise. The odds of a pause have risen to 90%, up from 86% prior to the inflation report, according to the CME FedWatch tool. The Fed may well be done with the current rate-tightening cycle, but don’t expect to hear that from anyone at the Fed, which does not want the markets to become too complacent about inflation.   UK GDP expected to rise by 0.1% The UK will post preliminary GDP on Friday. The consensus estimate stands at 0.1% q/q for the second quarter. If GDP misses the estimate and falls into negative territory, investors could get nervous and send the pound lower. Conversely, if GDP beats the estimate, the pound could gain ground. The Bank of England will be watching carefully, as it digests key economic data ahead of the next meeting on September 21st. . GBP/USD Technical GBP/USD is testing resistance at 1.2747. The next resistance line is 1.2874  1.2622 and 1.2495 are providing support  

Dollar falls as Fed rate hike odds soften to 10% for September and 20.2% in November US Annual CPI rose from 3.0% in June to 3.2% in July, snapping a streak of 12 consecutive declines Core CPI (ex-food/energy) fell to 4.7% year-over-year, lowest reading since October 2021   No surprises from the July CPI report After a roughly in-line inflation report, Wall Street remained optimistic that the Fed won’t need to raise rates in September.  Headline inflation rose but that was mainly due to the large drop we saw last month from the base effects.  Traders focused on the monthly readings and both headline and core saw gains held steady at 0.2%.  Markets are growing confident that the Fed is done raising rates as risk appetite remains intact as stocks rally and the dollar drops. It doesn’t seem likely that we will see a reacceleration with prices given the weakening labor market and as lending takes a hit.  The so-called super core services inflation gauge posted a 0.19% rise from a flat reading in June, but still well below last year’s half-percentage point pace.     Weekly jobless claims also came in higher than expected, which clearly supports the idea that the labor slowdown continues. The weekly first-time filings for unemployment reading rose from 227,000 to 248,000, while continuing claims edged lower from 1.692 million to 1.684 million. The Fed will have an easy time at Jackson Hole as there wasn’t anything from both the NFP and CPI report that would move members to tightening in September. The focus for the market will shift to rate cuts becoming aggressively priced in for next year, something the Fed will try to push against.     A Bank of America report showed household credit and debit card spending turned positive for the first time since March. They now expect a soft landing with no US recession.  The big question for markets is what will be the state of the economy in the fall, and whether resilience could drive a reacceleration with pricing pressures. EUR/USD The euro pullback might be over as the risk of more Fed tightening will get pushed back a couple of months.  The recent EUR/USD slide is hovering around a confluence of support that includes the 50- and -100 day SMAs and an uptrend support line that extends back to September 2022.  If bullish momentum emerges, upside targets include the 1.1250 region.  To the downside, 1.0928 provides initial support.      

CEE: Romanian inflation made it into single-digit territory This morning we saw inflation in Romania fall from 10.3% to 9.44% year-on-year, below market expectations. Romania joins the Czech Republic in the single-digit inflation club within the CEE region. After today's numbers, we have the full picture for the region with 8.8% in the Czech Republic, 10.8% in Poland and 17.6% in Hungary. Later today, the minutes of the latest Czech National Bank (CNB) meeting will be released. The board has formally lifted the FX intervention regime. So the minutes may show a discussion of FX, the impact on inflation and possibly the first discussion of rate cuts. Beyond that, the CNB will release the full inflation report including alternative scenarios, which are the board's preference at the moment. As the governor indicated, these envisage a later rate cut in the first quarter of next year instead of the fourth quarter of this year in the baseline scenario. In the FX market, yesterday's trading despite our expectations was not negative, and despite the jump in gas prices, we saw gains across the board. The US dollar took control again and drove CEE FX to stronger levels. Today's trading should be rather quiet given that the calendar doesn't offer much.

Canada’s inflation rises to 3.3% US retail sales climb 0.7%, core rate soars 1% The Canadian dollar is showing limited movement on Tuesday. In the North American session, USD/CAD is trading at 1.3477, up 0.13%.   Canada’s inflation jumps Canada released the July inflation report earlier today. CPI rose 3.3% y/y, up from 2.8% in June and above the consensus estimate of 3.0%. On a monthly basis, CPI was up 0.6% in June, compared to 0.1% in May and higher than the estimate of 0.3%. The average of two of the Bank of Canada’s core measures came in at 3.65% y/y in June, a drop lower than the 3.7% gain in May. Core CPI, which is considered more reliable than headline CPI, remains uncomfortably high for the Bank of Canada. The June inflation reading managed to fall within the BoC’s 1%-3% target, for the first time since March 2021. The rise in the July reading is a reminder that the fight against inflation is not over and it will be a challenge for the BoC to keep inflation below 3%. The Bank of Canada holds its next meeting on September 6th. The BoC has said that its rate decisions will be based on the data, and the rise in July CPI could provide support for a rate hike at that meeting. Reuters reported that the money markets have raised the probability of a 25 basis point hike in September to 31% currently, up from 22% prior to the inflation report release.   Consumer spending remains resilient In the US, retail sales for July surprised on the upside. Headline retail sales rose 0.7% m/m, above the June reading of 0.3% (upwardly revised from 0.2%). The core rate jumped 1.0%, blowing past the 0.2% gain in June. Both readings beat the consensus estimate of 0.4%. The Fed is widely expected to hold rates in September, but November is less clear-cut, with a 64% chance of a pause, a 32% likelihood of a 25-basis point hike and a 3% chance of a 50-bps increase.   USD/CAD Technical There is resistance at 1.3513 and 1.3580 1.3434 and 1.3367 are providing support      

UK job growth falls but wages soar UK releases CPI on Wednesday The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.2697, up 0.08%.   UK job market cools but wages jump Investors were treated to a mixed UK employment report today. The labour market, which has been surprisingly resilient in the face of the Bank of England’s tightening, is showing unmistakable signs of cooling. Employment fell by 66,000 in the three months to June, a huge reversal from the 102,000 gain in the previous period. The consensus estimate stood at 75,000. Notably, this was the first decline in job growth since August 2022. The unemployment rate rose from 4.0% to 4.2%, above the estimate of 4.0%, and unemployment claims rose to 29,000, up from 16,200 and above the estimate of -7,300. The one exception to the soft jobs report, but a critical one, was wage growth. Average earnings excluding bonuses rose 7.8% y/y in the three months to June, up from 7.5% and above the estimate of 7.3%. This was the highest level since records began in 2001. Average earnings including bonuses jumped 8.2%, compared to an upwardly revised 7.2% previously and above the estimate of 7.3%. The jump in wage growth will be unwelcome news for the Bank of England, as it indicates that the dreaded wage-price spiral continues to feed inflation. Higher wages are a key driver of inflation, and the BoE has warned that if wage growth doesn’t ease, it will be forced to raise rates even higher. This could mean that the weak UK economy will tip into a recession, but the BoE considers that the lesser evil compared to high inflation.   The BoE meets on September 21st and I do not envy Governor Bailey, who may have to cause more financial pain and raise rates. The UK releases the July inflation report on Wednesday, with CPI expected to fall to 6.7%, down from 7.9%. That would be a significant decline but it would still leave inflation more than triple the BoE’s target of 2%. The BoE and investors will be glued to the inflation report and I expect the British pound to have a busier day.   GBP/USD Technical GBP/USD is testing resistance at 1.2726. The next resistance line is 1.2787  1.2634 and 1.2573 are providing support    

Analyzing Tuesday's trades: GBP/USD on 30M chart   On Tuesday, GBP/USD went through low volatility and messy movements. In general, the pound's movements were the same as those of the EUR/USD pair. The market reaction to the reports was also similar, except that the European ZEW indexes were not related to the British pound. However, it had its own data in the form of reports on unemployment, wages, and unemployment benefit claims. In our opinion, the pound should have fallen not risen in response to the British reports in the first half of the day, as two of the three reports turned out to be worse than forecasts. Unemployment increased, and the number of benefit claims was higher than expected. However, the wage report, which showed a sharp growth rate, tipped the balance. As a result, the pair continued to correct after rebounding from the 1.2620 level, but before that, it was in a sideways channel for two weeks and simply returned to it. We don't expect the pound to start an uptrend. GBP/USD on 5M chart   Several trading signals were formed on the 5-minute chart. The pair spent the entire day between the levels of 1.2688 and 1.2748, regularly rebounding from them. Volatility was 78 points. There is no point in analyzing each individual signal, as they were almost identical. Beginners had to decide for themselves whether they wanted to scalp between levels, the distance between which is 30-35 points. As we can see, the price regularly bounced from these levels, which means that none of them was unnecessary. We witnessed such a movement on Tuesday. Since most of the signals turned out to be right, it was possible to earn a decent amount, but we do not see much sense in opening 10 trades with a potential profit of 10 points each.   Trading tips on Wednesday: On the 30-minute chart, the GBP/USD pair may be in a flat position. However, we insist that the pound fall, as we still believe it is overbought and unreasonably expensive. Not all of this week's reports may support the dollar, so we may see messy movements in the sideways channel. The key levels on the 5M chart are 1.2499, 1.2538, 1.2605-1.2620, 1.2653, 1.2688, 1.2715, 1.2748, 1.2787-1.2791, 1.2848-1.2860, 1.2913. Once the price moves 20 pips in the right direction after opening a trade, you can set the stop-loss at breakeven. On Wednesday, the UK is set to release an inflation report, and this is the main item for the day. If it turns out that inflation is rising or falling more slowly than expected, the pound may jump.   Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

Japanese yen rebounds, but intervention worries remain Japan releases July inflation on Friday The Japanese yen has bounced back on Thursday after failing to post a winning day since August 4th. In the North American session, USD/JPY is trading at 145.92, down 0.30%. USD/JPY has been the worst performer among the major currencies over the past month, declining about 7%. The yen dropped below the 146 line on Wednesday which marked a new nine-month low. The Japanese currency lost ground in the aftermath of the Federal Reserve minutes, in which members expressed concern about high inflation. The sharp depreciation of the Japanese currency is raising concerns that Japan’s Ministry of Finance (MOF) could respond by intervening in the currency markets in order to prop up the yen. The yen is now trading at levels at which the MOF shocked the markets last September and instructed the Bank of Japan to sell billions of dollars in support of the yen. The MOF and the BoJ have stated in the past that they are more concerned with sharp swings in the exchange rate and not so much with a particular value for the yen. The yen has plunged about 800 points since late July which means that another intervention cannot be ruled out. The US/Japan rate differential has been widening, with the yen depreciating as a result. The economic troubles in China have led to a sharp drop in the Chinese yuan, which is another factor weighing on the ailing yen. Japan releases the July CPI inflation report on Friday. Headline CPI is expected to fall from 3.3% to 2.5%, while the core rate is projected to dip from 3.3% to 3.1%. The ‘core-core’ rate, which excludes food and energy items, is projected to rise to 4.3%, up from 4.2%. Any surprises from the inflation report could mean volatility for the Japanese yen.   USD/JPY Technical There is resistance at 146.74 and 147.31 USD/JPY tested support at 145.71 earlier. Below, there is support at 144.92  

US The main event for next week will be the Kansas City Fed’s Jackson Hole Symposium.  Fed Chair Powell’s speech will reiterate that more rate hikes might be needed and that rates should stay higher for longer.  With the recent surge with real yields, Fed Chair Powell can acknowledge that policy is restrictive and that future rate cuts could eventually be warranted as long as inflation has been defeated. The economic data starts on Tuesday with the July existing homes sales report, which should show signs of stabilizing.  Wednesday contains the flash PMIs, which could show manufacturing remains in contraction territory and softness with the service sector continues.  On Thursday, we will get both initial jobless claims and the preliminary look at durable goods, which is expected to show weakness in July. Friday contains the release of the final reading of the University of Michigan sentiment report, with most traders wanting to know if inflation expectations had any major revisions. Earnings for the week include results from Baidu, Lowe’s, Nvidia, and Snowflake,   Eurozone As the ECB is poised to continue delivering more rate hikes to combat inflation, the risks of a hard landing are growing.  There’s no shortage of economic releases next week but the one that stands out is the flash PMI readings. The manufacturing sector is clearly going to remain in contraction territory for all the key regions(Germany, France, eurozone), while the service sector steadily weakens, fighting to stay in expansion territory.  Traders will also pay attention to both the German IFO business climate report as that could show expectations might be stabilizing and what should be another soft consumer confidence report. Thin trading conditions in Europe could occur on Tuesday as some banks (France, Italy) are closed for Assumption Day.   UK Next week is mostly about the UK flash PMI survey, as the composite PMI collapse in July is expected to be followed by further weakness in August. The manufacturing PMI is expected to weaken further from 45.3 to 45.0, the service reading to drop from 51.5 to 50.8, while the composite drops from 50.8 to 50.3.   The UK economy is still expected to barely show growth in Q3, but the momentum is fading as the BOE’s rate hiking cycle starts to weigh on the economy.   Russia Following the plunge in the ruble and an emergency rate hike, the focus on Russia will shift back to the war in Ukraine and the BRICS summit.  Russia was having a growing influence in Africa, but that might get tested as President Putin will be absent given his indictment by the ICC. The economic calendar is light with two releases, industrial production data on Wednesday and money supply on Friday.   South Africa The one notable release will be the July inflation report.  Inflation is expected to stay in the SARB’s target range between 3-6%.  The annual headline reading is expected to drop from 5.4% to 4.9%, while the monthly reading rises from 0.2% to 1.0%.  The monthly core reading is also expected to see a rise from 0.4% to 0.6%.   Turkey With inflation out of control, the CBRT is expected to deliver its 3rd straight rise, bringing the 1-week report rate to 19.50%.  The consensus range is to see the rate rise from 17.5% to anywhere between 18.50% and 20.5%. The 19.0% level was a key level in the past as that triggered the sacking of Governor Agbal.   Switzerland Another quiet week with Money supply data released on Monday and export data on Tuesday.   China One sole key economic data to watch will be on Monday, the monetary policy decision on its one-year and five-year loan prime rates that commercial banks used as a benchmark to price corporate, household loans and housing mortgages respectively. After a surprise cut of 15 basis points (bps) on the one-year medium-term lending facility rate to 2.50% last Monday, its lowest level since late 2009 to defuse the potential contagion risk in China’s financial system triggered by a major trust fund that failed to make timely payments to holders of its wealth management products which are backed by unsold properties of indebted property developers; forecasts are now calling for a similar 15 bps cut on the one and five-year loan prime rates to bring it down to 3.4% and 4.05% respectively. Market participants will also be on the lookout for more detailed fiscal stimulus from China’s top policymakers after recent “morale-boosting piecemeal rhetoric measures” that have failed to break the negative feedback loop in the China stock market; the benchmark CSI 300 index has given up all its ex-post Politburo gains from 25 July after the top leadership group promised to implement “counter-cyclical” measures to defuse the deflationary risk spiral in China. For earnings report releases, a couple of major companies to take note of; Sunny Optical Technology (Tuesday), Country Garden Services (Tuesday), China Life Insurance (Thursday), NetEase (Thursday), Meituan (Friday).   India A quiet calendar with only foreign exchange reserves and fortnightly bank loan growth data out on Friday.   Australia Flash Manufacturing and Services PMIs for August will be out on Wednesday.   New Zealand Balance of Trade for July out on Monday is forecasted to shrink to a deficit of -NZ$0.4 billion from a surplus of NZ$9 million posted in June. If it turns out as expected, it will be its first trade deficit since March 2023 due to a weak external demand environment. Q2 retail sales will be out on Wednesday where its prior Q1 negative growth of -4.1% y/y is forecasted to narrow to -0.9% y/y.   Japan Two key data releases to monitor. Firstly, flash Manufacturing and Services PMIs for August out on Wednesday; manufacturing activities are forecasted to improve slightly to 49.9 from 49.6 printed in July while growth in the services sector is expected to come in almost unchanged at 53.6 versus 53.9 in July  Next up, the significant leading Tokyo area consumer inflation data for August out on Friday; both Tokyo core inflation (excluding fresh food) as well as its core-core inflation (excluding fresh food & energy) are forecasted to be unchanged at 3% y/y and 2.5% y/y respectively. Both inflation measures have remained elevated especially the core-core rate which has soared to a 31-year high. Market participants will be keeping a close watch on the USD/JPY as it rallied past a key resistance zone of 145.50/146.10 despite rising concerns on possible BoJ’s FX intervention to negate the current bout of JPY weakness.   Singapore Two key data to focus on. July’s consumer inflation out on Wednesday where the core inflation rate is expected to be almost unchanged at 4.1% y/y versus 4.2% y/y in June. On Friday, industrial production for July is forecasted to show an improvement; -2.5% y/y from -4/9% y/y printed in June. Despite this forecasted improvement, it is still ten consecutive months of negative growth which increases the risk of a recession for Singapore in Q3 due to a weak external demand environment.      

Japan’s core CPI eases in July The decline supports expectations that BoJ will maintain policy USD/JPY has dipped lower on Friday The Japanese yen has extended its gains on Friday. In the North American session, USD/JPY is trading at 145.29, down 0.38%. The month of August has been kind to the US dollar, which has posted strong gains against all of the major currencies. USD/JPY has risen 2.34% in that period and on Thursday, the yen fell as low as 146.56, a nine-month low against the US dollar. The yen has been the worst performer among the majors over the past month, and the currency’s sharp depreciation has raised speculation that Tokyo could respond by intervening in the currency markets. Japan’s Ministry of Finance (MOF) shocked the markets in September 2022 when it intervened and bought billions of dollars with yen, which propped up the Japanese currency. At that time, the yen was also trading around the 146 level, and that has many investors on edge that the MOF may be planning another intervention.   Japan’s core CPI eases in July Japan’s inflation has been hovering above 3% for a prolonged period, higher than the Bank of Japan’s target of 2%. The BoJ has insisted that it will not loosen its ultra-accommodative monetary policy until it has evidence that inflation is sustainable, such as higher wage growth. The markets are not taking the BoJ at its word, as the BoJ keeps its cards very close to the chest in order to surprise the market when it shifts policy. Clearly, transparency is not high on the BoJ’s list, in contrast to the Federal Reserve and other major central banks. Since inflation data could well lead to a shift in policy, every inflation report out of Japan attracts significant attention. The July CPI report, released today, was no exception. Core CPI, which excludes fresh food, eased to 3.1% y/y, matching the consensus estimate and down from 3.3% in June. The indicator is closely watched by the BoJ and the decline supports expectations that the BoJ will maintain its current policy. This, despite the fact that Core CPI has now exceeded the BoJ’s 2% inflation target for 16 consecutive months.   The BoJ is not expected to make any major shifts to policy in the near-term, but that doesn’t necessarily mean that the central bank will stay completely on the sidelines. At the July meeting, the BoJ surprised the markets with a tweak to its monetary policy which provided more flexibility to the 10-year bond yield cap. Governor Ueda insisted that this was not a move towards normalization, but investors have learned the hard way that the BoJ is not hesitant to make policy moves that have blindsided the markets.   USD/JPY Technical USD/JPY is testing support at 145.71. Below, there is support at 144.07 There is resistance at 1.4640 and 147.31  

  The GBP/USD currency pair exhibited no noteworthy movements on Friday. The price continues to correct both in the global and local senses. After a double rebound from the level of 1.2634, the pair is aiming for the upper boundary of the sideways channel, i.e., the level of 1.2787. This level has already been reached, so a new round of downward movement within the same channel may begin soon. Since we are currently in a range, trading the pair is inconvenient and inadvisable. While we mentioned that it's better to trade the euro on higher timeframes, in the case of the pound, trading on higher timeframes is not profitable since the pair is not showing any trend movement. Overall, the situation could be more pleasant. A consolidation above the level of 1.2787 could trigger a continuation of the upward correction, which will not break the established concept. Let us remind you that the concept involves a prolonged decline in the British currency. Corrections are integral to any trend, so a slight upward move would not hurt. However, there is still a risk of resuming an illogical and unjustified upward trend that was difficult to explain several months ago. On the 24-hour timeframe, we still do not see a breakthrough of the Ichimoku cloud, so even after the last month's decline, the upward trend has not changed to a downward one. There was virtually no macroeconomic data on Friday, and there will be none today. Volatility for the pound did not exceed 100 points last week, and any value below this level is considered "average." The pound is certainly moving more actively than the euro (which is historically the case), but the range spoils everything.   ECB rhetoric is more important than the Fed This week, there will be even fewer significant events than last week. What can we highlight? Business activity indices? The Jackson Hole symposium, which only starts on Friday? A few speeches by Fed representatives? The U.S. durable goods orders report? All of these are interesting, but what matters is the market's reaction to them. All business activity indices and the durable goods orders report could only provoke a reaction if the actual values differ significantly from the forecasts. Fed representatives' speeches – we observe quite a few of these almost every week. The Fed's policy is currently clear and understood, and it is unlikely that Bowman or Gulsbee will report anything extremely important.   The market does not believe in a rate hike in September or the end of the tightening cycle. A few months ago, Jerome Powell indicated that the regulator was shifting to a "one hike every two meetings" approach, so there should be a pause in September. However, the latest inflation report, showing an acceleration in inflation, suggests we may see at least one more rate hike. And if the August report also shows an acceleration, tightening may occur as early as September. More questions are now being posed to the ECB, for which a brief pause is also expected. If signals start coming from the ECB about even slower tightening, it may be a reason for the European currency to accelerate its decline against the dollar.     The average volatility of the GBP/USD pair over the last five trading days is 84 points. For the pound/dollar pair, this value is considered "average." Therefore, on Monday, August 21, we expect movement within the range limited by levels 1.2646 and 1.2816. A downward reversal of the Heiken Ashi indicator will signal a downward spiral within the lateral channel.   The nearest support levels: S1 – 1.2726 S2 – 1.2695 S3 – 1.2665   The nearest resistance levels: R1 – 1.2756 R2 – 1.2787 R3 – 1.2817   Trading Recommendations: The GBP/USD pair in the 4-hour timeframe has secured itself above the moving average, but we are still in a flat market overall. You can trade now based on rebounds from the upper (1.2787) or lower (1.2634) boundaries of the sideways channel, but reversals may occur without reaching them. The moving average may be crossed very often, but it does not signify a change in trend.   Explanations of illustrations: Linear regression channels - help determine the current trend. If both are directed in one direction, the trend is strong. Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction to trade now. Murrey levels - target levels for movements and corrections. Volatility levels (red lines) - the probable price channel in which the pair will spend the next day, based on current volatility indicators. CCI indicator - its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.  

The euro started the week on a stable note, with little response to the eurozone inflation report released on Friday. In the North American session, EUR/USD is trading at 1.0886, reflecting a minor increase of 0.13%. Given the sparse data calendar for Monday, it is expected that the euro will maintain its calm trajectory for the rest of the day. Eurozone Inflation Trends: Headline Falls, Core Remains Unchanged The past week concluded with a eurozone inflation report that brought about a mixed reaction. The euro displayed minimal volatility in response to the data. The headline inflation rate for June was confirmed at 5.3% year-on-year (y/y), down from 5.5% in the previous month. This decline marked the lowest level observed since January 2022, primarily driven by a drop in energy prices.     Markets show little reaction to Friday’s eurozone inflation report Headline inflation falls but core rate unchanged The euro is steady at the start of the week. In the North American session, EUR/USD is trading at 1.0886, up 0.13%. With a very light data calendar on Monday, I expect the euro to remain calm for the remainder of the day.   Eurozone headline inflation falls, core inflation unchanged The week ended with a mixed inflation report out of the eurozone and the euro showed little reaction. Inflation was confirmed at 5.3% y/y in June, down from 5.5% in June. This marked the lowest level since January 2022 and was driven by a decline in energy prices. Core CPI remained unchanged at 5.5% in July, confirming the initial reading. The news was less encouraging from services inflation, which rose from 5.4% to 5.6% with strong wage growth driving the upswing. The labour market remains tight and inflation is still high, which suggests that wage pressure will continue to increase. Inflation has been moving in the right direction but core inflation and services inflation remain sticky and are raising doubts, within the ECB and outside, if the central bank’s aggressive tightening cycle can bring inflation back to the 2% target. The deposit rate stands at 3.75%, its highest level since 2000. The ECB’s primary goal is to curb inflation but policy makers cannot ignore that additional rate hikes could tip the weak eurozone economy into a recession. The ECB meets next on September 14th and there aren’t many key releases ahead of the meeting. ECB President Lagarde has said that all options are open and investors will be listening to any comments coming out of the ECB, looking for clues as to whether the ECB will raise rates next month or take a pause.   EUR/USD Technical EUR/USD tested resistance at 1.0893 earlier. Above, there is resistance at 1.0940 There is support at 1.0825 and 1.0778    

The EUR/USD currency pair moved upwards and downwards over the past day. Such a movement does not surprise us, as we have repeatedly mentioned that the current move to the south is fairly weak, and corrections and pullbacks occur quite frequently. So it's not surprising that the euro initially dropped and then increased.     Overall, it continues to decline, just not very rapidly or hastily. Yesterday showed us what many had realized long ago. The European economy is just shy of sliding into a recession. For several quarters, GDP indicators have been teetering on the brink of negative values. But what can one expect when the European Central Bank regularly raises its rate? It's worth noting that the GDP is going through tough times with a not-so-high key rate, especially when compared to rates in the UK and the US, where they are much higher.   While the British economy is also struggling, the American economy is growing briskly, giving the dollar a strong advantage. We will discuss business activity indices. For now, it's worth noting that the downward trend for the pair continues, but the CCI indicator went into the oversold zone yesterday. This is a strong buying signal, so we can expect a stronger upward correction soon. Especially since, on the 24-hour timeframe, we are still looking for a confident breakthrough of the Ichimoku cloud. Thus, the pair continues its correction within the global upward trend, but the main movement can resume anytime. What are the fundamental reasons for this? There aren't any. However, it's important to remember that the forex market doesn't always move strictly with fundamentals and macroeconomics.     The European economy is sliding into the abyss. The service sector in the European Union and Germany has fallen below the "waterline." If the manufacturing sector has been in the negative business activity zone for over a year, the service sector entered it in August. Now, both sectors in Germany and the EU are below the key level of 50.0, which does not bode well for the European economy. For instance, business activity indices in the US could be in better shape but still higher than in the EU or Germany.   Hence, we can only state the obvious: US statistics continue to outperform European ones. It's worth noting that the American currency has been falling for almost a year now. This happens when the Federal Reserve's rate rises faster and stronger, and the US economy appears much more stable and confident than the European one. Recognizing this fact leads us to believe that the European currency is extremely overbought and unjustifiably expensive. Based on this, we anticipate a further decline in the European Union's currency.   This week, we are awaiting the speeches by Jerome Powell and Christine Lagarde. Although we think both officials will only provide a little significant information, the market might still grasp certain hints. Both leaders hint at a pause in September; if one doesn't, it might support their country's currency. Given the sharp decline in business activity in the European Union, we believe the likelihood of "dovish" rhetoric from Christine Lagarde is much higher. But the Federal Reserve has also adopted a "two meetings – one hike" policy, so Powell is unlikely to discuss the need for immediate tightening without seeing the August inflation report.       The average volatility of the EUR/USD currency pair over the last five trading days as of August 24 is 65 points and is characterized as "average." Therefore, we anticipate the pair to move between levels 1.0809 and 1.0939 on Thursday. A downturn in the Heiken Ashi indicator will signal a resumption of the downward movement.   Nearest support levels: S1 – 1.0803 S2 – 1.0742 S3 – 1.0681   Nearest resistance levels: R1 – 1.0864 R2 – 1.0925 R3 – 1.0986     Trading recommendations: The EUR/USD pair currently maintains a downward trend. New short positions should be considered with targets at 1.0803 and 1.0742 in case of a downward reversal in the Heiken Ashi indicator or a price rebound from the moving average. Long positions can be considered if the price consolidates above the moving average, with targets at 1.0939 and 1.0986.   Explanations for illustrations: Linear regression channels – help determine the current trend. The current trend is strong if both are directed in the same direction. Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should proceed. Murray levels – target levels for movements and corrections. Volatility levels (red lines) – the probable price channel in which the pair will operate in the next 24 hours, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.  

Tokyo Core CPI expected to tick lower to 2.9% US to release jobless claims and durable goods orders later on Thursday USD/JPY put together a mid-week rally with gains of 1% but is considerably lower on Thursday.  In the European session, USD/JPY is trading at 145.72, up 0.60%.   Markets eye Tokyo Core CPI Japan releases Tokyo Core CPI on Friday, the third inflation report in just over a week. The previous two releases were for July, but Tokyo Core CPI is the first indicator of August inflation, hence its importance. The Bank of Japan closely follows core inflation, which excludes fresh food, as it is considered a more accurate estimate of underlying price pressures than headline inflation.  But which way is core inflation headed? Last week, National Core CPI eased to 3.1% in July, down from 3.3% in June.  However, BoJ Core CPI followed this week with a gain of 3.3%, up from 3.0%. Tokyo Core CPI eased to 3.0% in July, marking the 14th consecutive month above the Bank of Japan’s 2% target.  This is a sign that inflationary pressures remain strong.  Little change is expected for August, with a consensus estimate of 2. The BoJ has insisted that inflation is transient and that without evidence that high inflation is sustainable, such as stronger wage growth, it will not tighten policy. Still, there is speculation that unless inflation falls significantly, we could see the central bank make a shift in policy, especially if the yen remains at such low levels.     USD/JPY Technical USD/JPY is testing resistance at 145.54. Above, there is resistance at 146.41 There is support at 144.51 and 143.64

National Bank of Hungary review: Monetary policy to come off autopilot soon The National Bank of Hungary continued its normalisation in August with another 100bp cut in the effective interest rate. However, monetary policy is likely come off autopilot from September. The central bank believes that market expectations of rate cuts in the fourth quarter are exaggerated.   The National Bank of Hungary decided not to change the pace of normalisation in August. It cut the overnight collateralised lending rate (upper end of the rate corridor) by 100bp to 16.5%. More importantly, the central bank announced that from 30 August the interest rate on overnight quick deposit tender will be cut to 14%. This is an effective rate cut of 100bp. There will be a similar change in the overnight FX swap tender rate. In general, these changes did not come as a surprise. The highlight of the policy event wasn't the decision itself, but the updated forward guidance and the corresponding communication. As we wrote in our preview note, the August rate-setting meeting provided a perfect opportunity for the central bank to manage market expectations for monetary policy in the fourth quarter. The Monetary Council took advantage of this opportunity. In this respect, the press conference contained the golden nuggets, with Deputy Governor Virág reiterating that monetary policy is entering a new phase of normalisation after the merger of the effective and base rates. This convergence is taking place in September and after which the second phase will involve a simplified monetary policy toolkit. In practice, this could mean, that the Monetary Council will get rid of the overnight quick deposit tender and rely on its traditional overnight deposit facility to mop up excess liquidity from the market. However, we can expect that the overnight FX swap tender and the central bank discount bill to remain part of the toolkit in the new phase. On the rate path, the Deputy Governor was quite vocal about the rate cut expectations priced in by investors. While the central bank agrees with the view that the convergence will take place in September (so we can expect a final 100bp cut to end phase one), it disagrees with what has been priced in afterwards. The central bank sees market expectations as exaggerated and emphasises that monetary policy will come off autopilot in the second phase of normalisation. Decisions will be data-driven and made on a step-by-step basis, considering market stability and inflation risks. In our view – based on market expectations ahead of the meeting – this means in practice that the NBH is either suggesting smaller steps in future cuts and/or adding the pause to the mix of decisions. Nonetheless, the pushback against “excessive expectations” is a clear hawkish message. The September rate-setting meeting will be important because of the new Inflation Report, which contains the central bank’s updated macro outlook. Regarding the GDP outlook, the NBH sees downside risks materialising. However, inflation has been identified as the main culprit behind the collapse in domestic demand and weak economic activity. Against this backdrop, the main weapon to steer the economy onto a favourable growth path is through tight monetary conditions, positive real interest rates and thus faster consolidation of inflation. Another hawkish message.   Strategy in a nutshell Today's meeting has a lot to calm the nerves of HUF bulls. All hawkish messages from the central bank point to a higher interest rate path than the market's latest expectations. This means that the relative carry opportunity is improving, supporting the forint. The central bank's commitment to continue fighting inflation and maintaining a positive real interest rate environment is also helpful not only from a tactical but also from a strategic perspective. All in all, we remain positive on the HUF. The initial market reaction was clear and if the directional move remains intact, it may be satisfactory for monetary policymakers. The 6x9 month FRA rose 6bp on the comments, although we admit that this is still relatively modest, so we see some room for further correction. However, with the NBH willing to be data dependent, the rate market may be even more data sensitive than just reacting to central bank comments. The next test will be the incoming August inflation print on 8 September. If we see a higher-than-consensus inflation print – and we see a chance for an upside risk here mainly in services and fuel – then it can really shake the market's pricing of an aggressive easing cycle.

The euro is lower on Thursday, after a 3-day rally which pushed the currency 1% higher. In the European session, EUR/USD is trading at 1.0861, down 0.57%.   Eurozone CPI steady, core CPI falls Eurozone inflation was a mixed bag in August. Headline inflation was unchanged at 5.3%, missing the consensus estimate of a drop to 5.1%. There was better news from Core CPI, which dropped from 5.5% to 5.3%, matching the estimate. The ECB will be pleased with the decline in core inflation, which excludes food and energy and provides a more accurate estimate of underlying press pressures. Many central banks, including the Federal Reserve, have taken pauses in the current rate-tightening cycle, but the ECB has raised rates 13 straight times. Will we see a pause at the September 14th meeting? The answer is far from clear. Inflation remains above 5%, more than twice the ECB’s target of 2%. The central bank is determined to bring inflation back down to target, but that would require further rate hikes and the weak eurozone economy could fall into a recession as a result. ECB member Robert Holzmann said today’s inflation report indicated that inflation remained persistent and admitted that the latest inflation numbers pose a “conundrum” for the ECB. The markets aren’t clear on what to expect from the ECB, with the odds of a pause at 67% and a 25-basis point hike at 33%. ECB President Lagarde hasn’t provided much guidance, perhaps because she’s as uncertain as everybody else about the September rate decision.   Germany’s numbers continue to point downwards, as the eurozone’s locomotive has become an economic burden. The latest release, July retail sales, declined by 2.2% y/y, sharply lower than the revised -0.9% reading in June and below the consensus estimate of -1.2%. . EUR/USD Technical EUR/USD is testing support at 1.0831. Below, there is support at 1.0780 1.0896 and 1.0996 are the next resistance lines

The previous trading week was filled with important events and reports. When looking at the range and movements of both instruments, one might wonder: why was it so subdued? It was reasonable to expect stronger movements and market reactions. To briefly recap, key reports from the United States turned out weaker than market expectations. Even the stronger ones left a peculiar impression. GDP grew by 2.1% in the second quarter, not the expected 2.4%. The ADP report showed fewer new jobs than expected. Nonfarm Payrolls reported more jobs, but the previous month's figure was revised downward. The ISM Manufacturing Index increased but remained below the 50.0 mark. The unemployment rate rose to 3.8%, which few had anticipated.     Based on all these reports, one might have assumed that it was time to build a corrective upward wave, but on Thursday and Friday, the market raised demand for the US dollar, so both instruments ended the week near their recent lows. So what can we expect this week?   On Monday, the most interesting event will be European Central Bank President Christine Lagarde's speech. On Tuesday, another speech by Lagarde, as well as Services PMIs of the European Union, Germany, and the United Kingdom. We can also expect speeches by other members of the ECB Governing Council. I advise you to monitor the information related to Lagarde's speeches. If she softens her stance, it can have a negative impact on the euro's positions. Wednesday will begin with a report on retail trade in the EU and end with the US ISM Services PMI. We can consider the ISM report as the main item of the week, although the ISM Manufacturing PMI that was released on Friday did not stir much market reaction. It is likely that the index will remain above the 52.7 mark, which is unlikely to trigger a market reaction. On Thursday, you should pay attention to the final estimate of GDP in the second quarter for the European Union. If it comes in below 0.3% quarter-on-quarter, the market may reduce demand for the euro. The US will release its weekly report on initial jobless claims. On Friday, Germany will publish its inflation report for August, and that's about it. There are hardly any important events and reports this week. Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still believe that targets in the 1.0500-1.0600 range are feasible, and I recommend selling the instrument with these targets in mind. I will continue to sell the instrument with targets located near the levels of 1.0637 and 1.0483. A successful attempt to break through the 1.0788 level will indicate the market's readiness to sell further, and then we can expect the aforementioned targets, which I have been talking about for several weeks and months.     The wave pattern of the GBP/USD pair suggests a decline within the downtrend. There is a risk of completing the current downward wave if it is d, and not wave 1. In this case, the construction of wave 5 might begin from the current marks. But in my opinion, we are currently witnessing the construction of the first wave of a new segment. Therefore, the most that we can expect from this is the construction of wave "2" or "b". I still recommend selling with targets located near the level of 1.2442, which corresponds to 100.0% according to Fibonacci  

Post-BOJ Initial reaction – yen jumped, dollar fell, gold rallied, and equities rose. Some of these moves have started to reverse Japan’s Overnight Swap Indexes have an implied rate of 0.042% by the January 23rd BOJ policy meeting US 3-year Treasury attracts highest yield since 2007 (4.660% vs 4.650% pre-sale) The Japanese yen surged in Asia following BOJ Governor Ueda’s verbal intervention. Ueda noted that the BOJ might know enough about wage pressures by year-end, in other words if they could be ready to abandon negative rates.  The BOJ blackout period typically starts two days before the first policy meeting, which means we could have a full week of verbal intervention before the September 21st policy meeting starts. Japan officials will likely hesitate to actually intervene until some of the major US risk events are behind us. ​ No sense in selling dollars before seeing the latest US inflation report, which could easily upend any action. ​ A new week is here, and it looks like financial markets were ready for a major reset. Dollar-yen bearishness could also gain momentum if risk appetite deteriorates here. The yen got a boost after some weekend reading reaffirmed Wall Street’s belief that the Fed will pause rate increases in September, then review the latest economic data and assess if more rate hikes are needed in November/December.  The WSJ’s Nick Timiraos, who’s also known as the Fed whisperer has markets convinced that officials view the risks as more balanced, so a September surprise is very unlikely. It seems many risk events are on this week’s calendar, so we could see other drivers besides more chatter from Japanese officials and US CPI/retail sales data/inflation expectations.  The $AAPL This will be a big week for tech given the recent slide with some of the mega-cap tech stocks.  Apple was in the headlines after they decided to stick with Qualcomm’s 5G modems for their smartphones. Apple was trying to produce similar chips as soon as 2024, but it seems they aren’t there just yet.  The Qualcomm deal for Snapdragon 5G Modem-RF Systems will cover smartphone launches in 2024, 2025 and 2026.  This is great news for Qualcomm shares, while Apple shares will mostly await what happens with Tuesday’s important launch event.  Expectations are for Apple to unveil the new iPhone 15 and show how AI will be used.   $TSLA Tesla is also getting a boost after Morgan Stanley upgraded the EV giant and raised their price target from $250 to a street-high $400 a share.  The upgrade was driven by hopes that their Dojo supercomputer could help accelerate the adoption of robotaxis and network services.   Equities and risk appetite will have a handful of events to determine if a rebound is justified: Tuesday is all about the Apple event. Wednesday focuses on the US inflation report, which should show rising gasoline prices sent headline inflation higher, but the core readings are likely to remain subdued.  Thursday will be busy with the UAW strike deadline, a potential pause by the ECB, slight labor weakness from jobless claims data, and a soft retail sales report.  For Wall Street, Thursday’s focus should fall on the UAW strike deadline, which falls a minute before midnight.  A potential UAW strike of 10 days could trigger a recession for the Michigan economy and cost $5.6 billion in US GDP.  Friday contains the release of the University of Michigan inflation expectations, which are important for the higher for longer trade. Any yen strength could be short-lived until we get beyond some of the big market events of the week.   USD/JPY Daily Chart      Bearish price on USD/JPY , a daily chart of which is shown, is tentatively respecting key trendline support that started from the July 28th low.  The knee-jerk selloff spurred from BOJ Governor Ueda’s verbal intervention might not be the beginning of a new trend just yet.  Given the state of the US economy and its resilience, it appears that Japan’s central bank remains very concerned with the yen’s levels.  If USD dollar strength reemerges, the 147.80 level remains critical resistance.  On the other hand, if risk aversion runs wild, the 145.00 level provides initial support, followed by the 143.75 level.  

In the ever-evolving landscape of global finance, each day brings its own set of surprises and challenges. From the commanding rise of tech giants to the dramatic fall of the dollar against the yuan, and the intriguing insights into Wall Street's AI revolution, the financial world is in constant motion. Join us as we unravel the recent events that have left an indelible mark on the financial markets. Tech Giants' Green Day Tech giants have once again demonstrated their prowess by leading a remarkable "green day" in the market. The likes of Apple, Amazon, and Tesla have shown that their influence extends far beyond the confines of the digital realm. Their ability to sway the financial tide reflects the transformative power of technology in today's economy. Dollar's Dip Against Yuan In a surprising turn of events, the dollar experienced its most significant drop in months against the yuan. This shift has far-reaching implications for international trade and currency markets. Investors are closely monitoring this trend as it may signal changes in global economic dynamics. Disney and Charter Resolve Dispute Disney and Charter Communications recently settled a long-standing dispute, a development that has brought relief to millions of households. The resolution paves the way for the return of ESPN and ABC to 15 million households, underscoring the significance of healthy negotiations in the media industry. Alibaba's New CEO Charts a Course Alibaba, one of the world's largest e-commerce and technology conglomerates, welcomed a new CEO who promptly outlined strategic priorities. The decisions made by this industry giant have the potential to influence not only the company's future but also the broader tech landscape Wall Street's AI Craze Wall Street has been abuzz with the AI craze in recent years, but is it reaching its peak? Investment guru Jim Cramer has issued a warning, suggesting that the excitement surrounding artificial intelligence in finance may be nearing its zenith. This assessment invites us to contemplate the future of finance and technology.   The financial world is a dynamic and ever-shifting ecosystem where tech giants flex their muscles, currencies dance to their own tunes, and Wall Street continually seeks new frontiers. As we navigate the intricacies of this realm, one thing remains certain: the financial markets will continue to be a source of fascination and opportunity for those who dare to tread its waters. Stay tuned for more updates on the captivating world of finance.

Treasury rates remain attractive: 2-year at 5.009%, 5-year at 4.428%, 10-year at 4.288%, and 30-year at 4.370% US inflation report expectations are for core readings to remain subdued, while headline jumps on rising gas prices. CPI M/M: 0.6%e v 0.2%; Y/Y: 3.6%e v 3.2% prior; core m/m: 0.2%e v 0.2% prior; y/y: 4.3.%e v 4.7% prior Fed rate hike expectations are pricing in slightly a greater chance of more tightening this winter. Implied rate peak at 5.452% vs 5.446% last Tuesday.   USD/JPY is not ready to turn bearish despite BOJ Governor Ueda’s verbal intervention that kicked off the trading week.  The higher for longer and risks of more Fed tightening could keep the dollar supported a little while longer.  This afternoon’s US 10-year auction went as planned, awarding 4.289%, which was the highest yield since 2007.  Yesterday we saw strong demand for the Treasury’s three- and six-month bill auctions.  The flows that are coming the dollar’s way are not going to be easing anytime soon and that should provide a level underlying support for the dollar. The big risk for the dollar is if inflation cools and economic resilience quickly vanishes.  A bearish dollar outlook should not be the base case just yet, but if the data suggests that is happening currency markets could jump on that trade.       While dollar strength has resumed it is still over 50 pips away from levels that trade before BOJ Governor Ueda’s comment on a ‘quiet exit’ reducing monetary policy easing.  This week will either see a resilient US economy force more jawboning from Japan, or support the belief that the Fed’s done raising rates.  Initial support resides at the 146.80 level, followed by Monday’s low of 145.90. To the upside, key resistance is provided by the 147.90 level, followed by the psychological 150 handle.    

September still a hold, while swap contracts suggest odds a 49.3% chance of a hike at the November 1st FOMC meeting Supercore inflation rate rises most since March Two-year Treasury drifts lower by 2.1 bps to 4.999% Inflation is not easing enough for the Fed to abandon their hawkish stance.  The upside surprises might be small, but that should keep the hawks in control.  Core inflation heated up for the first time in six months and that should have markets leaning towards one more Fed rate hike in November.  Inflation will likely still be running well above the Fed’s 2% target for the rest of the year, but a weaker consumer supports the case the disinflation process will remain intact. ​   US CPI   Source: BLS This was a complicated inflation report. Everyone knew that gas prices were sharply higher and that the housing market is still seeing elevated prices(house prices are now rising, while rents have eased).  The headline inflation read showed CPI increased 0.6% in August from a month ago, which was the highest reading since June 2022.  The annual inflation reading rose from 3.2% to 3.7%, a tick above expectations.   Market reaction A weakening US consumer will continue as they battle surging gasoline prices, stubborn shelter prices, and increasing medical costs. US stocks are wavering as this inflation report will keep the Fed pushing the ‘higher for longer’ narrative. If Wall Street remains convinced that the labor market is cooling, that will do the trick for getting inflation closer to the Fed’s target. The US dollar and Treasury yields were initially higher given the core CPI delivered an upside surprise, but once traders digested the entire report, the bond market reversed course. Core inflation rose 0.3%, which was due to the rounding of 0.278% which somehow makes it a lot less hot.  Rent makes up 40% of Core PCE and prices posted the smallest gain since the end of 2021. Expectations are elevated for the consumer to be significantly weaker and that we could have a soft holiday spending season, which should support the disinflation process.   Dollar  5-minute Chart The dollar is wavering as Wall Street wasn’t able to come up with any definitive stances on when the Fed will signal the all clear that policy is restrictive enough.  The dollar’s strength is most notably against the Japanese yen, while the euro will likely react to Thursday’s ECB rate decision.  Following yesterday’s Reuters report that the ECB will have inflation projections above 3%, markets appear to be leaning towards a rate hike.          

US inflation rises but core inflation falls to two-year low All eyes on ECB rate decision on Thursday The euro is trading quietly on Wednesday. In the North American session, EUR/USD is trading at 1.0739, down 0.16%. The August US inflation report today was an interesting mix. Headline inflation rose for a second straight month, from 3.2% y/y to 3.7% y/y and above the consensus estimate of 3.6% y/y. On a monthly basis, headline inflation rose 0.6% in August, while core CPI came in at a modest 0.3%. The jump in headline inflation will no doubt grab the headlines and cause some groans.  Nobody wants to see inflation rise, but the main driver of the upswing was higher gasoline prices, which can change quickly from one month to the next. If gasoline prices reverse direction and fall sharply, that will be weigh on headline inflation. The Federal Reserve will be paying more attention to Core CPI, which fell to 4.3%, down from 4.7% in July. This matched the consensus estimate and notably, marked the lowest level since September 2021. The inflation report should cement a pause from the Fed at next week’s meeting.   Will the ECB raise rates? The European Central Bank meets on Thursday and it remains unclear whether policy makers will raise rates by a quarter-point or pause for the first time after nine straight hikes. Interest rate futures have priced in a hike at 65% but both the hawks and doves at the ECB have persuasive arguments. The hawks will argue that inflation has fallen to 5.3% in the eurozone but it’s unrealistic to expect inflation to fall back to the ECB’s 2% target without further rate hikes. With a deposit rate of 3.75%, there is still room for the ECB to continue raising rates and push inflation lower, which is the central bank’s number one priority. The doves will respond that inflation is moving in the right direction and a pause will give the central bank time to monitor the effects of rate hikes. The eurozone economy is sputtering and Germany, the bloc’s largest economy is now expected to fall into a recession, according to the European Commission. If the ECB continues hiking, it will only worsen economic conditions. I don’t envy ECB President Lagarde, who will have to decide which position to adopt and may face criticism no matter what she does.   EUR/USD Technical EUR/USD tested support at 1.0732 earlier. Below, there is support at 1.0654 There is resistance at 1.0777 and 1.0855          

30-year Treasury yield rose 12bps to 4.645% vs 15.19% which was the peak at 1981. Bloomberg dollar index has best rally in three weeks, which is also highest level since December BOJ Governor Ueda stands on dovish ground, yen free to fall; PM Kishida delivers plan to ease inflation pain Bank of Japan Governor Kazuo Ueda and his deputy governor Uchida are committed to their ultra-easy policy.  Governor Ueda noted that there was “very high uncertainty” over whether companies would continue to increase prices and wages.  Uchida stated that the central bank needs to patiently continue monetary easing.  He also reiterated that they are closely watching FX markets. Japan’s Prime Minister Kishida also unveiled new economic measures that should help deliver sustainable wage growth.  Kishida expressed his unhappiness with the yen, noting that excessive currency moves are not desirable and that he wants to monitor markets with vigilance. The pressure to stop the yen’s slide is building and the current move in Treasuries makes dollar strength likely to remain intact. USD/JPY Daily Chart     As of late March, the US dollar continues to assert renewed strength as a a result, USD/JPY has retested prior levels that  triggered intervention last year.  The path to 150 seems like it should be there given the major reset Wall Street is having with pricing in higher-for-longer. Everyone wants to know when does Japan step in and support the yen, or can they just ditch their easy policy?  Excessively overbought territory could last a while longer, but it seems  150 to 155 will remain key levels. Next months inflation report should include some upward revisions, which should mean traders might become more optimistic about a policy shift or the abandoning of yield curve control.  Yen weakness might last a little while longer, but FX traders are anxious for when Japan is ready to make a meaningful policy change.  

Australia releases consumer and business confidence on Tuesday The Australian dollar has posted slight losses in Monday trading. In the North American session, AUD/USD is trading at 0.6564, down 0.18%. The Aussie continues to show sharp swings and declined 1.50% last week. This snapped a three-week winning streak in which the Australian dollar surged 4.9% against its US counterpart. Australian dollar eyes consumer and business confidence Australia will release consumer and business confidence data on Tuesday. Consumer confidence fell sharply in November, as the Westpac Consumer Sentiment index declined 2.6% to 79.9, down from 82 in October. Consumers are deeply concerned about the rising cost of living and the possibility of further interest rate increases. The markets are expecting a rebound in December, with a forecast of 3.0%. The NAB Business Confidence index is expected to improve to -1 in November. The index came in at -2 in October, the first time it dropped into negative territory in four months. The zero level separates pessimism from optimism. Reserve Bank of Australia Governor Michele Bullock speaks at an event in Sydney on Tuesday and the markets will be looking for hints regarding future rate policy. The RBA held the cash rate at 4.35% at its meeting earlier this month and doesn’t meet again until February. This will give policy makers a chance to monitor the effect of elevated rates on the economy.   US nonfarm payrolls beats forecast Friday’s US nonfarm payrolls came in at 199 thousand in November, higher than the consensus estimate of 180,000 and the October gain of 150,000. Unemployment dropped from 3.9% to 3.7% and average hourly earnings rose to 0.4% m/m, up from 0.2% in October and above the market consensus of 0.3%. The strong data points to a resilient labour market despite signs that the economy is cooling down, and has reduced fears of recession. The markets are still expecting around four rate cuts in 2024, while the Fed is still talking about possible rate hikes. Tuesday’s inflation report will be closely watched by the markets, and if CPI is stronger than expected, the markets may have to tone down their expectations of a rate cut early in 2024.   AUD/USD Technical AUD/USD tested support at 0.6555 earlier. Below, there is support at 0.6523 0.6585 and 0.6613 are the next resistance lines  

Spanish CPI lower than expected at 3.1% Chicago PMI expected to decelerate to 51.0 The euro is calm in Friday trade. In the European session, EUR/USD is trading at 1.1053, down 0.08%. Spanish CPI dips to 3.1% Spain released the December inflation report today, with CPI dipping to 3.1% y/y, down from 3.2% in November. This was better than expected as the consensus estimate stood at 3.4%. The reading was the lowest rate since August, with the drop attributed to lower prices for fuel, food and electricity. Monthly, CPI rose from -0.3% to 0.0%, but this was lower than the consensus estimate of 0.3%. Core CPI dropped to 3.8% y/y, down from 4.5% in November. Germany, France and the eurozone will follow with their inflation releases next week. If the data shows that inflation eased in December, it will put pressure on the European Central Bank to cut rates in the first half of 2024. The ECB has not followed the Federal Reserve and continues to push back against rate-cut expectations. The markets have priced in 150 basis points from the ECB next year, with an initial cut expected in April. ECB President Lagarde has poured cold water over rate-cut fever, saying that the ECB should “absolutely not lower its guard”. Lagarde may have to shift her hawkish stance or risk tipping the weak eurozone economy into a recession. If next week’s inflation report indicates that inflation is falling, we can expect the voices in the ECB calling for looser policy to get.   The US releases Chicago PMI, an important business barometer, later today. The PMI shocked in November with a reading of 55.8, which marked the first expansion after fourteen straight months of contraction. The upward spike may have been a one-time blip due to the end of the United Auto Workers strike as activity rose in the auto manufacturing industry. The consensus estimate for December stands at 51.0, which would point to weak expansion.   EUR/USD Technical EUR/USD continues to put pressure on resistance at 1.1086. Above, there is resistance at 1.1171 1.1116 and 1.1031 are providing support  

National Bank of Romania review: Not in a dovish mood yet As expected, the National Bank of Romania (NBR) kept its policy unchanged at 7.00% for the time being, welcoming the lower-than-expected inflation at the end of 2023 but not coming out with dovish hints just yet. The NBR opted to stand pat again with its policy stance and did not provide much new to chew on in its press release either. The Bank’s statement on the inflation rate resuming its downward trajectory after the January 2024 acceleration “on a lower path than that shown in the November 2023 medium-term forecast” is a rather neutral statement since the well-behaved price pressures of year-end 2023 naturally pull down the entire profile ahead. Moreover, the NBR attributed the subsequent fall of inflation (after the tax hikes get incorporated by firms) to supply side factors primarily – namely disinflationary base effects and downward corrections in agri-food commodity prices and crude oil prices. What stood out was rather the Bank’s stronger tone on the fiscal stance needed to keep the pressures stemming from the budget deficit in check. The wording on uncertainties and risks was changed from ‘’notable’’ to ‘’significant’’. Moreover, with the 2024 budget out and further clarity on the expenditures ahead, the NBR mentioned the possibility of an even higher tax burden, a possibility that is also in our scenario.   All told, we expect the first dovish hints at the 13 February meeting, when a new inflation report will also be published. As discussed above, we also expect the Bank to lower its inflation profile. We also think that the dovish hints to come will be, at least partially, counterbalanced by the caution against the strong annual wage increases which are likely to persist this year. We foresee the first rate cut in May, although April is equally likely if firms choose a more cautious pricing strategy in early 2024.

The Canadian dollar has continued to edge lower against its US counterpart since the start of the year, with the USD/CAD pair beginning the week around the 1.34 level, which is around its highest level since the middle of December. We are entering into a highly important couple of weeks for the Canadian dollar. Tuesday’s inflation report will be a highly important one in guiding Bank of Canada interest rate expectations. Economists are pencilling in a monthly contraction in headline consumer prices (-0.3% consensus), which would be only the second negative print in the past year. Retail sales data on Friday should also give policymakers a decent barometer as to how well consumer spending held up towards the end of last year, as we head into the January BoC meeting next Wednesday. No change in rates is seen, although the tone of the bank’s communications will held investors gauge whether we can expect a first cut as early as April, which is currently more than fully priced in by swaps.

National Bank of Hungary Preview: Embracing the present Despite a clear deterioration in external risks, we believe that favourable internal developments, accompanied by recent comments from Deputy Governor Barnabás Virág, will tip the balance towards a 100bp cut. However, if the forint continues to weaken markedly, then the previous 75bp pace will likely be maintained.   The decision in December The National Bank of Hungary cut its key interest rate by 75bp to 10.75% in December. At the same time, the central bank has given clear indications that the pace of rate cuts may be increased if internal and external developments allow, as we discussed in our last NBH Review.   The main interest rates (%)   Internal developments strengthen the case for a larger cut Headline inflation fell by 2.4ppt to 5.5% year-on-year (YoY) between November and December, which in fact was a downside surprise compared to our 5.7% forecast. However, what’s more important is that December’s figure was 0.2ppt lower than the central bank’s own estimate, published in the latest Inflation Report. Other measures of price pressures also look favourable, as core inflation decelerated to 7.6% YoY in December, while on a three-month on three-month basis, it was below 3%. At the same time, the National Bank of Hungary's measure of inflation for sticky prices also decreased, displaying a reading of less than 8.7% YoY.   Underlying inflation indicators   The country's external balances are also improving, as the trade balance has been in surplus for 10 months, and even reached an all-time high of EUR 1.7bn in November. As for the current account, we have already seen surpluses in the second and third quarters of 2023, and we expect it to remain in positive territory at the end of 2023.   External developments warrant a cautious approach Let’s start with two of the positive developments regarding external risks: We've already seen a dovish pivot from the Federal Reserve, and we expect the European Central Bank to follow suit at some point. This means that the next move for both central banks will be a cut rather than a hike, which in turn means that the HUF carry will not decline as much going forward as it would have if these central banks were still in rate-hiking mode. Even though rate cut expectations have been slightly dialled down compared to the time of the December NBH meeting, the direction of travel is favourable for emerging market currencies, including the HUF. One of the key uncertainties has been removed with the positive decision of the European Commission on the horizontal enablers (judicial reforms). With Hungary now having access to around EUR 10.2 bn of Cohesion funds, this could increase risk appetite towards Hungary and support market stability. Container freight benchmark rate per 40 foot box (USD)   In our view, there has been one external factor where there has been a clear and marked deterioration, and that is the conflict over the Red Sea. Several shipping companies have already suspended shipments on the Red Sea routes due to the ongoing Houthi attacks, and in our latest note on Hungarian inflation, we’ve also discussed the effects of trade diversion. The impact of the Red Sea conflict on supply chains is already being felt as Suzuki halted the production of the Vitara and S-Cross models at its Esztergom, Hungary plant between 15 and 22 January. The shutdown was caused by delays in the delivery of Japanese engines. With shipping costs rising and supply chain disruptions already evident, we have identified the deterioration in external developments as the dominant factor that would affect the central bank's reaction function.