Daily market analysis

Consumer prices rose 8.5% in July, less than expected as inflation eased.

August 11, 2022

US stocks surged on Wednesday, as the release of softer-than-expected inflation data bets the Federal Reserve could pivot to a smaller pace of hikes, while some market watchers take a grain of salt on the view and thought officials may still be a long way from their goal, 2% in the price increase.

The July Consumer Price Index (CPI) brought a sigh of relief to those with unstoppable inflation concerns, and swaps are now suggesting a move of 50 basis points as more likely in September than a repeat of the 75 bps increases that officials opted to implement at their past two meetings. In fact, the CPI surprise is just one piece of the intricate puzzle officials are playing with, as food prices in the US soared the most in July since 1979, keeping the cost of living painfully high even as lower gasoline costs offered some relief to consumers.

The benchmarks, S&P 500, Nasdaq 100, and Dow Jones Industrial Average surged on Wednesday as the critical US CPI indicated softer than expected results. All eleven sectors in S&P 500 stayed in positive territory and six out of eleven sectors rose more than 2% for the day, as Materials and Consumer Discretion performed the best among all groups, advancing with 2.88% and 2.87% respectively on Wednesday. The Dow Jones Industrial Average climbed 1.6%, Nasdaq 100 increased 2.8%, and the MSCI world index went up 1.8% on a daily basis for the day.

Main Pairs Movement

US dollar dropped on Wednesday, following a cooler-than-expected inflation report for July that raised expectations of a less hawkish interest rate hike cycle than previously anticipated by the Federal Reserve. The DXY index dropped to a level below 105.2 when critical data was released and fell deeper to a daily-low level below 104.7 during the middle of the US trading session. After the corrective pullback, the greenback oscillated in a range between 105.0 to 105.4.

The GBP/USD advanced with a 1.15% gain on a daily basis for the day. The cables attracted fresh transactions and reached a level above 1.225 as investors’ risk sentiment has improved dramatically following a significant decline in the US inflation rate. However, on the UK front, bulls are waiting for GDP due on Friday, and the economic data is likely to drop to 2.8% from the previous figure of 8.7%. Meanwhile, EUR/USD also surged to a monthly-high level above 1.036 amid a weak safe-haven greenback across the board. The pair rose with a 0.84% gain on a daily basis.

Gold slid on Wednesday, as the improvement in investors’ risk appetite. XAU/USD touched a refreshed monthly-high level to nearly US$1,808 mark while the announcement of US consumer data which the whole world focused on, then pullback and wavered in a range of US$1,788 to US$1,792 marks as a broader risk-on in the global market.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair surged on Wednesday, regaining upside momentum and touched a daily top above the 1.036 mark during the US session after the release of upbeat CPI data. The pair is now trading at 1.03522, posting a 1.35% gain on a daily basis. EUR/USD stays in the positive territory amid renewed weakness witnessed in the US dollar, as the greenback collapsed to multi-week lows in the sub-105.00 region and provided strong support to the EUR/USD pair. The US CPI declined to 8.5% on a yearly basis in July, which came in lower than the market’s expectations and acted as a tailwind for riskier assets. For the Euro, the energy crisis and elevated inflation remain a key focus for the growth outlook in the Eurozone, which might limit the upside for the EUR/USD pair.

For the technical aspect, the RSI indicator is 55 as of writing, suggesting that the pair is facing heavy bullish pressure as the RSI stays in the overbought zone. As for the Bollinger Bands, the price moved out of the upper band so a strong trend continuation can be expected. In conclusion, we think the market will be slightly bearish as the RSI is entering overbought levels. The pair might witness some short-term technical corrections before climbing higher toward the next resistance at 1.0438.

Resistance: 1.0438, 1.0484

Support: 1.0158, 1.0082, 0.9991

GBPUSD (4-Hour Chart)

The GBP/USD pair rallied on Wednesday, adding to its intraday gains and touched a daily high above the 1.226 mark in the US session amid a weaker US dollar across the board. At the time of writing, the cable stays in positive territory with a 1.37% gain for the day. The softer US CPI data today seems to have pushed back market expectations for a larger Fed rate hike move at the September policy meeting and exerted heavy bearish pressure on the safe-haven greenback. However, investors still expect more tightening from the Federal Reserve but the doors are open to less aggressive action, which means a rate hike of at least 50 basis points is still on the table. For the British pound, the fears of a possible recession and the BoE’s gloomy outlook could act as a headwind and cap the upside for the cable.

For the technical aspect, the RSI indicator stands at 68 as of writing, suggesting that the pair remains bullish in the short run as the RSI heads north almost vertically. For the Bollinger Bands, the price regained strong upside momentum and moved out of the upper band, therefore a continuation of the upside trend can be expected. In conclusion, we think the market will be bullish as the pair is heading to test the 1.2277 resistance line. The risk will remain skewed to the upside if the pair break above the aforementioned level.

Resistance: 1.2277, 1.2309, 1.2381

Support: 1.2186, 1.2068, 1.1940

XAUUSD (4-Hour Chart)

As the US dollar came under heavy selling pressure amid the softer-than-expected US CPI report on Wednesday, the pair XAU/USD witnessed some buying but then retreated to the US$1,793 area to surrender most of its daily gains during the US trading session. XAU/USD is trading at US$1,797.42 at the time of writing, rising 0.16% on a daily basis. The post-US CPI broad-based US dollar sell-off and diminishing odds for a larger Fed rate hike have both acted as a tailwind for the dollar-denominated gold, as the odds for a 75 bps Fed Rate hike move in September tumble to just 35% now. However, the risk-on market mood and the strong rally in the US equity markets should limit the gains for the safe-haven metal.

For the technical aspect, the RSI indicator stands at 64 as of writing, suggesting that the upside is more favoured as the RSI indicator remains above the mid-line. For the Bollinger Bands, the price continued to rise toward the upper band, therefore the upside traction should persist. In conclusion, we think the market will be bullish as the technical indicators head firmly higher within positive levels. On the upside, a break above the US$1,812 resistance could open the door for additional gains.

Resistance: 1812, 1822, 1831

Support: 1785, 1769, 1756

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDInitial Jobless Claims20:30263K
USDPPI (MoM) (Jul)20:300.2%