US CPI (Jul) – 10/08 – with US CPI reaching another 40 year high of 9.1% in June, there was some concern that the Federal Reserve might have been tempted to go for a bigger than expected 100bps rate move in July. While the headline number grabbed all the attention it was notable that core prices fell back from 6% to 5.9%. Concerns about a 100bps rate move in July didn’t last very long as two of the most hawkish members of the FOMC pushed back against the idea, saying that they felt that 75bps was sufficient. Since those numbers were released, the debate has moved on a touch with concerns over a recession now outweighing concerns over aggressive central bank tightening. Bond market pricing since the June CPI numbers were released has seen prices rally strongly and yields fall back. Part of the reason for this change of tack has been the belief that while the Federal Reserve is likely to continue to talk tough on inflation in the short term, and continue to hike rates into year end, they will find it difficult to continue to do so into next year. We’ve already started to see weakness in broader commodity prices as well as in prices paid data in recent months, which suggests that headline inflation could well have peaked in the short term. Expectations are for a fall to 8.8%, with core prices expected to rise from 5.9% to 6.1%.      UK Q2 GDP – 12/08 – the UK economy managed to get off to a decent start to the year with 0.8% GDP growth in Q1. This is expected to slow sharply in Q2, especially given the sharp rise in the energy price cap in April, as well as the various tax rises which also came into effect at the same time. Having said that on the monthly numbers the picture looks slightly more positive. In April, not surprisingly the economy saw a -0.2% contraction in economic output, however in May this was more than reversed by a 0.5% expansion. On the various PMI indicators, despite rising costs economic activity has been positive, although retail spending has been a drag. Retail sales have also been a net negative thus far, however the Queen’s Platinum Jubilee celebrations could have acted as a positive catalyst in terms of tourism numbers. We saw in the latest GDP numbers from the likes of Spain and Italy how tourism can offer a positive catalyst and with a cheap pound the UK could see a similar uplift, which could see the UK avoid what is expected to be a negative print of -0.1%, even as Q3 offers an even more challenging environment.    US PPI (Jul) – 11/08 – having fallen back from its March peaks to 10.9% in May, US PPI unexpectedly jumped back to 11.3% in June, raising concerns that further inflationary pressure is building up in US supply chains. This was unexpected given that there had been little indication of such pressures in prices paid numbers for the same month. Furthermore, as far as core prices were concerned prices continued to fall away from their March peaks. Excluding food and energy, prices fell from 8.5% to 8.2%, with the hope that this wider trend can continue into July and Q3. There is some evidence that the June spike may have been a one-off given recent sharp falls in prices paid numbers. This could see prices slide back sharply from 11.3% to 10.3%, with core prices falling below 8%. The wider question for investors and markets in general is how much more can prices fall before finding a floor. This is the more important question when it comes to inflationary pressures. Where is the new neutral rate, given its highly unlikely to be at 2.5% which is where Fed chair Jay Powell seems to think it is.   China Trade (Jul) - 07/08 – China’s trade surplus hit a record in June, as the reopening of the economy after weeks of restrictions saw exports rise by 17.9%, and their strongest level this year. There is certainly an element of a pent-up rebound in these numbers and because of this the July numbers are likely to more subdued, with an expectation of a rise of 13.2%. Imports are likely to be a different story. These are expected to continue to look soft. We saw a 1% gain in June, as the stop start nature of China’s zero-covid policy is likely to weigh on internal demand. Retail sales have been weak for several months now and while demand has picked up in recent months as lockdown restrictions have been eased, the uncertain nature of China’s covid policy is likely to keep demand fairly weak. Forecasts are for a 4% rise which...

As written yesterday, GBP/USD highs were located at 1.2197, 1.2214 and 1.2233. GBP/USD traded perfectly to 1.2214. Lows at 1.2072 and 1.2063 traded exactly to 1.2064. Then longs dead stopped perfectly at reported range top at 1.2174. Vital to 1.2214 and 1.2063 are perfect levels. GBP/USD knew exactly where it would trade. If GBP/USD traded in between price at an interval then the message is GBP/USD contains a hesitant price and is not certain to direction. The larger range yesterday was 1.2174 to 1.2009. GBP/USD traded 40 pips above 1.2174. Next week's range: 1.2181 Vs 1.2020. GBP/JPY short strategy traded 200 pips lower. Longs next week must trade above 162.07. DXY traded 178 pips this week while USD/CAD traded 124 pips. USD/CAD's months long problem is short ranges to DXY. USD/CHF traded 181 pips Vs DXY 178. SPX traded 88 pips this week, 226 last week and 188 points 2 weeks ago. SPX trades consistent to DXY 200 ish pip ranges. A free trade to longs and shorts for free money occurs when SPX trades above or below DXY ranges. EUR/USD's overall range this week began at 1.0283 to 1.0136. Next week: 1.0290 Vs 1.0155. EUR/USD big break for higher 1.0425. What is EUR/USD doing. Exactly nothing. The numbers may change slightly but the location remains the same week to week. Plus, EUR/USD trades consistent to ranges. The number 00 to end an exchange rate trades but not very often. Today is unusual. GBP/USD top target today is 1.2200, AUD/USD 0.7000. USD/JPY 134.00. USD/CAD price path today: 1.2876, 1.2884,1.2892, 1.2900, 1.2916, 1.2924, 1.2933. GBP/JPY is an outlier currency pair and here's today's setup. 161.96, 162.06, 162.26, 162.36, 162.46, 162.56, 162.67. Bottom 161.45 achieves by 161.65 and 161.85. Upper target 162.67. Continuation Fail 162.26. Note ending numbers, 5, 6 and 7. GBP/JPY works on a 2 pip differential as a permanent fixture to its prices and won't ever change. USD/JPY traded 415 pips this week while JPY/USD traded 235 pips. JPY/USD 235 Vs DXY 178 is key to USD/JPY. USD/JPY big break for lower next week is located at 131.55 and the larger range trades from 136.12 to 133.83 then 132.69. Ranges inform next week 131.55 holds and we range trade. AUD/USD will trade exactly as this week: Caught between AUD/EUR and EUR/AUD. As written Sunday, AUD/USD targets higher at 0.7080’s or longs from 0.6887 to 0.6913. AUD/USD 0.7080;s traded 0.7047 then perfect to 0.6887. NZD/USD big break for higher is found at 0.6360. NZD/USD must break minimum 0.6325 for any chance at 0.6260 but then NZD/USD trades in no man's land and untouchable. AUD/JPY 92.01 and NZD/JPY 83.53 for lower. Deeply oversold CAD/JPY must break 102.43. EUR/CAD will trade next week from 1.3236 to 1.3088 while GBP/CAD trades from 1.5671 to 1.5499.

The US gained a whopping 528K jobs in July, far above expectations.  Strong wage growth adds to the notion of a 75 bps hike in September and is set to keep the dollar bid Only a drop in inflation could chang the course of the greenback beyond minor correction.  Help wanted, and much more of it – that is what the Nonfarm Payrolls report tells markets about the state of the hiring in America. Contrary to most Nonfarm Payrolls reports, the verdict on this one is clear – a monster report.  The US gained 528,000 jobs in July, more than double the early expectations of 250K, exceeding any upgraded expectations based on leading indicators – and on top of upward revisions. July's gain comes on top of 26,000 additional jobs updated for June. Despite rapid hiring, wage growth accelerated. It rose by 0.5% MoM in July, above 0.3% projected, and 5.2% YoY, beating early estaimtes for 4.9%. The only downside is a 0.1% slide in the participation rate to 62.1%. Neverhteless, the US is just 32,000 jobs short of pre-pandemic employment.  The impressive report seemed to have pushed away recession fears – at least for now – and substantially increased the odds for a third triple-dose rate hike by the Federal Reserve. The odds for a 75 bps hike in September are now around 60%, up from 40% before the NFP.  The boost to Fed expectations means a stronger US dollar. Will it last? First, some of the immediate reaction to the NFP tends to revert before the weekly close and this report is unlikely to be different. Nevertheless, I expect the greenback to hold onto more ofthe  its gains.  For stocks, good news is bad news – investors are focused on higher interest rates as discounting future valuations. However, markets have shown a new/old tendency to buy the dip and they may change their narrative. A strong US economy means higher corporate earnings.  What's next? The next big release is the Consumer Price Index (CPI). The fall in gasoline prices has undoubtedly pushed headline CPI lower, but there is uncertainty about Core CPI. If underlying inflation finally falls, it could change the narrative and send stocks higher and the dollar lower.  However, until that publication, the dollar is set to remain on top. 

Gold closed the third straight week in positive territory. $1,780 aligns as key technical level for XAU/USD. July inflation data from the US could trigger a strong reaction next week. Gold started the month of August on a firm footing and climbed toward $1,800 before erasing a portion of its weekly gains on Friday. The sharp decline witnessed in the US Treasury bond yields and the dollar’s uninspiring performance allowed XAU/USD to gain more than 1% during the first half of the week. Following the impressive July jobs report from the US, however, gold reversed its direction. The July inflation report from the US next week will be the next significant catalyst for the pair. What happened last week? The dollar sell-off continued at the beginning of the week and the US Dollar Index declined to its weakest level in nearly a month below 106.00. The data published by the ISM revealed on Monday that the Prices Paid Index of the Manufacturing PMI survey declined to 60 in July from 78.5 in June, revealing a significant softening in price pressures. Investors continued to scale back 75 basis points (bps) Fed rate hike bets in September on this data and gold closed the fourth straight day in positive territory.   With safe-haven flows starting to dominate the financial markets, however, the greenback regathered its strength and didn’t allow XAU/USD to preserve its bullish momentum. Reports of US House of Representatives Speaker Nancy Pelosi planning to visit Taiwan despite China’s stern warnings caused markets to turn risk-averse on Tuesday. Additionally, hawkish comments from Fed officials helped the USD continue to outperform its rivals. Chicago Fed President Charles Evans said that a 50 bps rate hike would be a “reasonable assessment” for the September meeting but left the door open for a 75 bps increase. Moreover, St. Louis Federal Reserve Bank President James Bullard said that he would want to get the policy rate to the 3.75-4% range by the end of this year and San Francisco Fed President May Daly argued that markets were getting ahead of themselves by expecting rate cuts next year. Nevertheless, investors breathed a sigh of relief after Pelosi landed in Taiwan and the dollar recovery lost its steam midweek. The ISM Services PMI improved to 56.7 in July from 55.3 in June but the dollar stayed on the back foot with the Prices Paid Index falling to 72.3, compared to the market expectation of 81.6, from 80.1. On Thursday, XAU/USD gathered further bullish momentum amid falling global bond yields. Following its August policy meeting, the Bank of England (BOE) announced that it hiked its policy rate by 50 bps to 1.75% as expected. On a concerning note, the bank said that it was now projecting the UK economy to tip into recession in the last quarter of the year and continue to contract throughout 2023. Although the dollar captured some of the outflows out of the British pound with the immediate market reaction, the fact that XAU/GBP gained more than 1% on a daily basis on Thursday showed that gold demand remained robust. The US Bureau of Labor Statistics announced on Friday that Nonfarm Payrolls in the US grew by 528,000 in July, surpassing the market forecast of 250,000 by a wide margin. Underlying details of the report revealed that the Unemployment Rate declined to 3.5% and the annual wage inflation, as measured by the Average Hourly Earnings, remained steady at 5.2%. The 10-year US Treasury bond yield gained more than 5% and climbed above 2.8% after these data, causing XAU/USD to make a sharp U-turn ahead of the weekend. Next week  Trade Balance data from China will be watched closely by market participants at the beginning of the week. In case there is a bigger-than-expected decline in the trade surplus, gold could find it difficult to gather strength and vice versa. Since early summer, disappointing data releases from China have been weighing on gold prices amid their potential negative impact on the demand outlook. On Wednesday, the US Bureau of Labor Statistics will release the Consumer Price Index (CPI) figures for July. On a yearly basis, the CPI inflation is forecast to edge lower to 8.9% from 9.1% in June. The market reaction to inflation data should be pretty straightforward with a higher-than-expected CPI print triggering a dollar rally and a soft reading forcing the currency to face renewed selling pressure.  The inflation report is likely to significantly affect the market pricing of the size of the Fed’s September rate hike. Currently, the CME Group FedWatch Tool shows that there is a 66.5% probability of the Fed opting for a 75 bps rate increase. Since Fed officials refrained from outright dismissing such a rate move, a CPI reading above 9% should allow hawkish Fed bets to...

GBP/USD snapped two straight weekly gains after dovish BOE hike. UK Q2 GDP could confirm a potential recession, US inflation is also crucial. Acceptance above 1.2200 is critical for GBP bulls to sustain the recovery. GBP/USD bulls faced exhaustion after two straight weekly advances and therefore, ended the week in negative territory. The Bank of England’s (BOE) dovish rate hike and persistent recession fears could be linked to cable’s underperformance. The impressive US July jobs report on Friday highlighted cable buyers’ hesitancy heading into the critical US inflation and UK quarterly GDP releases. GBP/USD: What happened last week? The US dollar’s weakness extended at the start of the week on Monday, as risk flows dominated amid a reduced probability of a 75 bps Fed rate hike in September. GBP/USD built on last week’s 150 pips gains and hit the highest level in four weeks at 1.2293, in anticipation of a 50 bps rate hike by the BOE to combat inflation. But the greenback sprung back to life towards the mid-week, as recession fears amplified alongside escalating geopolitical tensions. The safe-haven bids for the dollar resurfaced ahead of US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, despite China’s warning against the US going through with the visit. Meanwhile, investors assessed the mixed US ISM Manufacturing and Services PMI data, as the Treasury yields continued to struggle at lower levels, which signaled at an incoming recession. The hawkish commentary from Fed policymakers Charles Evans, James Bullard and Mary Daly jacked up odds for a 75 bps Sept lift-off back to around 50%, offering the much-needed support to dollar bulls. Further, upbeat US corporate earnings results eased recession fears while markets believed that the Fed could stick to its tightening path through the balance of this year. GBP/USD tested the 1.2100 demand area ahead of Thursday’s BOE rate hike verdict. The downbeat UK data undermined the pound further, as it showed that the country’s business activity service sector expanded at its weakest pace in 17 months. The UK final S&P Services PMI dropped to 52.6 in July from 54.3 in June vs. 53.3 expectations. The currency pair came under renewed selling pressure after the pound wilted on the BOE’s projection of a recession later this year. The central bank hiked the key rates by 50 bps to 1.75%, as widely expected but mentioned that it is not on a pre-set tightening path. The inflation forecasts were revised up to above 13% by October. Cable hit a five-day low of 1.2065 on the dovish BOE rate hike but managed to recoup some of its losses, as the US dollar lost ground alongside the yields after the weekly Initial Jobless Claims rose by 260K, hovering near an eight-month peak. On the final trading day of the week, the pair returned to the red amid pre-NFP anxiety. With the US Bureau of Labor Statistics reporting a 528,000 increase in NFP, compared to the market expectation of 250,000, the dollar gathered strength and forced GBP/USD to extend its slide toward 1.2000. Further details of the jobs report showed that the annual wage inflation remained steady at 5.2%. Week ahead: US inflation and UK GDP stand out The week ahead makes up for a slow start from an economic data release perspective leading into an eventful second half. Wednesday’s US Consumer Price Index (CPI) and UK quarterly GDP are likely to hog the limelight. Besides, US-China tensions over Taiwan, recession fears and Fed tightening expectations will continue to lead sentiment. Monday is absolutely data-empty on both sides of the Atlantic while Tuesday will see the release of minor US reports, in the Preliminary Unit Labor Costs and Prelim Nonfarm Productivity. The US monthly inflation will be reported on Wednesday, which will have a strong market impact, as the current inflation rate stands at the highest level since November 1981 at 9.1%, on an annualized basis. Hotter CPI figures will reinforce the need for a super-sized rate hike by the Fed at its next meeting, which could lift the dollar at the expense of the pound. Thursday’s US weekly Jobless Claims and Producer Price Index (PPI) data will also be critical to shaping up the Fed expectations. On Friday, the attention will turn towards the UK, as it publishes its monthly and quarterly GDP data. It’s the first estimate of the Q2 GDP and will hold utmost significance for the pound traders, especially given, the BOE’s latest gloomy economic outlook. The country’s manufacturing and industrial production data will also be released in parallel. On the US macro front, the Preliminary UoM Consumer Sentiment and Inflation Expectations data will wrap up another crucial week.  GBP/USD: Technical analysis GBP/USD broke below the ascending trend line coming from July 14 and the Relative Strength Index (RSI) indicator on the daily...

EUR/USD - 1.0240 Despite euro's retreat from Tue's near 4-week high of 1.0293 to 1.0124 (Wednesday), subsequent rebound to 1.0253 in New York yesterday on broad-based usd's weakness suggests choppy swings would continue ahead of key U.S. jobs report, above 1.0293 needed to extend rise from July's 0.9953 bottom to 1.0334, break, 1.0360. On the downside, only a daily close below 1.0209 signals intra-day top is made n heads back to 1.0161 (New York low), 1.0124. Data to be released on Friday: Australia AIG services index, Japan all household spending, coincident index, leading indicator. UK Halifax housing prices, France current account, trade balance, industrial output, imports, exports, non-farm payrolls, Italy industrial output. U.S. non-farm payrolls, private payrolls, unemployment rate, average weekly earnings, Canada employment change, unemployment rate and Ivey PMI.