The British pound is in negative territory today, after a contraction in UK GDP. In the European session, GBP/USD is trading at 1.2126, down 0.61% on the day. British economy declines in Q2 The British pound posted dazzling gains on Wednesday, surging 1.19%. The impressive climb was, however, a case of US dollar weakness, rather than any newfound strength in the pound. Inflation in the US was unexpectedly weaker than forecast, which raised market hopes that the Fed will ease policy. This led to the US dollar being less attractive and the currency took a nasty spill against all the majors. Sterling hasn’t fared as well after the UK posted the second-quarter GDP report. The economy fell in July by -0.1% QoQ, following a 0.8% gain in June (-0.2% exp). On an annualized basis, GDP growth slowed to 2.9%, within expectations but sharply down from 8.7% in Q1. The outlook does not look good as we head towards winter, with UK households about to be hit with sharp increases in energy prices. Consumers are already struggling with a nasty cost of living crisis, and as they tighten the purse strings, the spectre of a recession will become that much more likely. Another key indicator, Manufacturing Production, came in at -1.6% MoM, down from a 1.7% gain in May (-1.8% exp). This was the fourth decline in five months, pointing to a worrying downtrend in manufacturing. The week wraps up with UoM Consumer Sentiment, a key confidence indicator. With the cost of living crisis in the US, it’s no surprise that the index has tumbled – falling from 65.7 in March to just 51.5 in June. This points to weak expansion, just above the neutral 50.0 line. The July forecast calls for a slight improvement to 52.5 points. GBP/USD technical GBP/USD continues to test resistance at 1.2241. Next, there is resistance at 1.2361.  There is support at 1.2123 and 1.2061.

The most highly antipated economic reports of this month, if not this quarter was released on Wednesday and showed U.S inflation steadied for the first time since May 2020. In the middle of a growingly-uncertain economic environment, there was one piece of semi-good news this week with the closely watched U.S inflation report showing consumer prices didn't rise at all in July compared with June. That’s largely thanks to a significant drop in gasoline prices, which are finally approaching $4 a gallon on average after rising above $5 in June. While many economists and policymakers have held back from jumping to any big conclusions from this month's data, President Joe Biden definitely wasn't one of them. “While the price of some things went up, the price of other things went down by the same amount. The result: zero inflation last month,” Biden victoriously declared following the data release on Wednesday. As traders very well know – one month's data does not make a trend. And it certainly doesn't mean an era of rapidly surging prices – or Fed rate hikes – is over. In response, several key Fed officials left no doubt they will continue to tighten monetary policy until price pressures are fully broken. The Fed is "far, far away from declaring victory" on inflation, said Minneapolis Federal Reserve Bank President Neel Kashkari. His views were echoed by San Francisco Fed President Mary Daly, who also warned it is far too early for the U.S central bank to "declare victory" in its fight against inflation. Calling inflation "unacceptably" high, Chicago Fed President Charles Evans said he believes the Fed will likely need to lift interest rates to 4% by year-end and to 4.4% by the end of 2023 – in line with what Fed Chairman Jerome Powell signalled after the Fed's latest meeting. Elsewhere, former Treasury secretary Larry Summers said “there’s positive news here, but not of a kind that should fundamentally alter anyone’s view” – warning that inflation could prove sticky and that it may take a recession to bring it down dramatically. If history has taught us anything, then the one thing that we do know for certain is both scenarios, whether that’s persistent Inflation or a Recession, ultimately present an extremely lucrative backdrop for commodity prices. Right now, this is a traders' market packed with endless opportunities to capitalize on the short-term macro-driven volatility – And that's the most profitable strategy right now! Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

Outlook: It will be nice to see import prices down, but trade has a lesser effect on the dollar with every passing year. What will get attention is the University of Michigan consumer sentiment index, expected to rise to 52.5 in Aug from 51.5 in July (and 50 in May). Ho hum. The data gets far more attention than it deserves because the survey covers only about 500 people and regular people don’t know much, anyway. That applies to the one-year inflation expectations, too, forecast down to 5.1% from 5.2%, barely enough to mention. The 5-10-year survey forecast is seen slipping to 2.8% from 2.9%. This would put in back to April 2021, according to Bloomberg., Big deal. Bloomberg also notes “The two-year breakeven (difference between the conventional yield and the inflation-protected security) peaked in March near 5% and this week reached 2.70%, its lowest since last October. It is near 2.80% now.” Again, this is more wishful thinking than based upon any professional economics modelling or even common sense, especially now that we have several outpfits, including various regional Feds, delivering “sticky” inflation estimates. That means the drop in the probability of the 75% Sept rate hike from 75% at the start of the week to 47% now is an idea built on sand. The same thing applies to the year-end rate expectation down to 3.52% from 3.56%. Rapid see-sawing in inflation expectations and the resulting effect on yields is a snare and a delusion. No one knows better than the Fed that one or two data points suggesting the peak has passed cannot be trusted. The Fed simply must stick to its plan, if it can becalled that, to hike three more times this year and hang on to those hikes well into Q1 2023. It’s possible, just, that a glimmer of acknowledgment of that idea is behind the slight improvement in the dollar. For that purpose, it’s the 2-year that needs watching. See the Market Watch chart. It’s not much, but the drop in yield followed by a rise in yields one day later implies great uncertainty. Chandler notes “The two-year note yield fell almost 25 bp in the last two weeks of July and jumped 34 bp last week. It is virtually flat this week around 3.22%.” In a nutshell, some of the hopeful are staging a fistfight with some of the reality-checkers. The spillover to FX is occurring mainly in the dollar/yen, chiefly because we have an anchor there–the fixed BoJ curve-control policy. As for what’s happening elsewhere, the retreat in the big gainers, especially currencies like the AUD, is scary. We could be looking at a dying flash in the pan. We expect a retreat after a big move, but we need it to end and PDQ if the new trendlette is going to thrive. So far we have about a 25% retracement of the big move on Wednesday. Today may not tell us whether it ends or persists because it’s a Friday in the bowels of summer. We are at risk of the dollar recovering more than “normal.” Don’t laugh, but this is where old-fashioned support and resistance lines can come in handy, especially if they coincide with indicators like the B band. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

S&P 500 did another daily reversal, but the bears haven‘t yet won. The risk-on in stocks hasn‘t been broken as value demonstrates, but bonds are getting the macro picture right, as they often do – the Fed is to remain hawkish as Daly reaffirmed, which would help keep real assets in check while that lasts. Precious metals proved their sensitivity to sharp increases in yields – this recognition of the tightening reality played out on the long end of the curve, not affecting the continued rate raising expectations for Sep FOMC really (regardless of the inconsistent market interpretations of both CPI and PPI). S&P 500 and Nasdaq outlook Even if S&P 500 pushes higher today on better-than-expected consumer sentiment data (relief at the pump), the bears are likely to break below the 4,212 support next week (if not later today already). Credit markets HYG is likely to retrace a part of yesterday‘s reversal – a proper reversal as the volume confirms while quality debt instruments would play a lesser role in moving stocks today. Clearly, bonds aren‘t bullish here, and the deterioration is to continue over the weeks ahead. Bitcoin and Ethereum Similarly in cryptos, no game-changer happened, and the rally is looking tired.

Europe It’s been another positive week for markets in Europe with the DAX briefly rising to a two-month high before slipping back. Despite the slow drip feed of negative headlines of rising gas prices, and the supply chain challenges thrown up by the heatwave in Europe there’s been little appetite to drive stocks lower. The news that the Rhine River had fallen to a critical 40cm depth level which would require it be closed to freight barely registered a response. This is probably because smaller barges can still operate at a lower minimum depth level of 30cm. The resilience of US markets may be helping here as receding inflation is tempering expectations that the Federal Reserve will be as aggressive as originally supposed when it comes to raising rates. The FTSE100 also hit a two month high earlier this week as it also closes higher for the fourth week in succession.   Having seen positive numbers from Entain yesterday, Paddy Power owner Flutter Entertainment has posted a similarly positive update, putting a bow on a week of strong gains. Group revenues in H1 increased by 11% to £3.39bn, although losses came in at £112m, up from an £86m loss a year ago, though this was mainly down to various acquisition related costs. Customer numbers increased over the period by 14% to 8.7m average monthly players, with the US business driving the main gains with a 49% increase in monthly players. The prospect for growth in the US appears to be outweighing concerns over the potential for weakness in its UK and European business. Revenues in the US rose by 50% to just over £1bn. On the outlook for H2, the company said that so far there has been no discernible slowdown of a consumer slowdown, and that full year EBITDA is expected to come in line with expectations. Over the past few days, we’ve seen big falls in the share price of GSK as well as Haleon after GSK was named in a lawsuit, along with Sanofi, over the use of Zantac, a drug that was withdrawn from use in 2019, over concerns it caused cancer. These two have been the worst performers this week on the FTSE100 despite today’s modest rebounds. Zantac was a drug that was used in treating gastric distress, like heartburn or indigestion. Haleon appears to be being targeted, perhaps unfairly due to having only been recently spun out from GSK. The falls in the share price have today prompted a statement from GSK, where they state that the US FDA and the EMA in Europe concluded there is no evidence of a link with cancer. The statement went on to say that GSK have informed Haleon of notice about potential claims under indemnification provisions of the spin-off, while going on to say that it is not possible to quantify what any potential liability might be.   Insurers have also had a positive week on the back of this week's H1 updates from Aviva, Admiral Group, and Legal & General.   US US markets have opened higher taking their cues from a positive session in Europe, and a sharp fall in import and export prices in July, underlying that inflation pressures in the US are continuing to ease. The latest University of Michigan inflation survey was a bit of a mixed bag, with confidence improving in August, while 1 year inflation expectations declined to 5%, however 5–10-year expectations edged higher to 3%, from 2.9%. Electric car maker Rivian’s latest Q2 update proved to be less than impressive, although there were signs of progress. Having built 2,553 vehicles and delivered 1,227 of them in Q1 the company said it expected to produce 4,000 in Q2. The company managed to achieve that, with 4,401 produced with the company delivering 4,467 of them. Rivian said it remained optimistic of delivering on its 25k target for the whole year, despite the challenges facing production and sourcing raw materials. Forward sales also came in ahead of expectations, at $364m, however the company said production costs were rising, which meant that Q2 losses were higher than expected at $1.71bn. Full year losses are now expected to rise to $5.4bn, and while it still has plenty of cash, the rise in costs is likely to be a problem unless they look at raising prices.   FX The US dollar has seen a bit of a rebound today at the end of what has been a negative week for the greenback. Declining inflation expectations and weaker than expected inflation, has seen markets reduce the prospects of a more aggressive Federal Reserve when it comes to raising rates. This week’s inflation numbers have shifted the dial on a 75bps rate hike in September, to a less aggressive posture of 50bps. Rather surprisingly, the main beneficiary...

EUR/USD topside yesterday was set against targets at 1.0256 and 1.0259. Both extraordinary moves for the day and both targets achieved for big profits yet EUR/USD breaks vital 1.0285 and trades another 82 pips to 1.0367. Note the location of 1.0285 as dead center of the hourly candle. The break of 1.0285 then placed EUR/USD from 1.0285 to 1.0350. What allowed EUR/USD to travel higher was the ECB at 10:00 then EUR/USD was good until 1.0304. The BOE at 11 am stopped EUR/USD to begin the long slide lower to 1.0320. The Fed at 12:30 then settled EUR/USD at 1.0296 from 1.0367 highs or71 pips. EUR/USD yesterday traded for the day overall 167 pips and about 67 more than normal. On the surface appears as just another EUR/USD trade day but 1.0285 set EUR/USD off 82 of the 167 pips or 1/2 of its total 167 pip range. The 2 most vital points to traded markets are overall ranges and range points such as 1.0285. How much was 1.0285 respected was seen in the weekly trade target at 1.0283. Friends and subscribers profits were 130 ish pips but the pips were easy and guaranteed. And the trade duration was 4 days. Range Vs Price shares the most unique relationships and most vital to understand market trading. What were the trade options. Not only was EUR/USD overbought at 1.0285 for the day but 1.0285 location was dangerous. The only option was short and short anywhere. EUR/USD moves yesterday were unusual, extraordinary and in mathematical weirdo ville. Correct was EUR/USD to reverse at 1.0250's. Who or possibly which central bank took EUR/USD higher from 1.0285 is unknown. We're not privy to such information anymore as was the norm in the old days from the top 4 banks. Previously, the top 4 banks release Flow Reports to determine who to major banks and central banks were big buyers and sellers. EUR/USD Big break for higher is now 1.0420 and the range becomes 1.0357 to 1.0294. Below 1.0294 targets 1.0231 easily. EUR/USD Friday should close in the vicinity of 1.0168. The lower for EUR/USD is the better for the long trade next week. GBP/JPY shorts yesterday at 163.82 traded to 163.64 then began the long drop to 161.00's. GBP/JPY vital at 162.01 allowed GBP/JPY to trade to 161.00's. Big break for higher is now 162.05. EUR/JPY is on the verge to trade lower at 136.95. EUR/JPY is a horrible currency at the moment heading into week 3. EUR/JPY trades neutral to neutral without significant progress. EUR/JPY is more suited as a day trade. EUR/JPY broke vital 136.93 and traded 30 pips lower to 136.60. This should serve as a warning to EUR/JPY. DXY achieved 106.45 and USD/CAD 1.2990's. As written yesterday, USD/CAD 1.2958 Vs DXY 106.45. The DXY V USD/CAD differential spread from 20 ish pips to 40's. Higher for USD/CAD must break 1.2835. DXY now enters its next range from 103.00's to 105.00's. Vital above is located at 105.54, 105.76 and 105.80 Vs 104.30 below. The breaks below for DXY was significant as much as 1.0285 was for EUR/USD. AUD/USD broke above 0.7001 and lower for AUD/USD must crack 0.7013. Current range 0.7055 to 0.7096 then begins overbought and shorts. Most important to overall currency markets is NZD/USD break above 0.6362 and today 0.6368. NZD/USD at 0.6417 is fairly neutral which means NZD has every ability to travel to 0.6500's or break below 0.6368. We're short next week in the vicinity of 0.6490's or long upon a break of 0.6368. GBP/AUD yesterday was written longs at 1.7395. Correct was short at 1.7395. Deeply oversold GBP/AUD should be a big winner for longs next week. Same story for EUR/AUD. USD/JPY for next week 131.61. GBP/USD. Looking for a close around 1.2104 for longs next week. A close much higher then GBP/USD is on the last place of the trade rank list. EUR/NZD as written yesterday long for a quick 50 pips at 1.6178. EUR/NZD traded 1.6150 to 1.6274. EUR/NZD current trades deeply oversold and informs NZD/USD could easily break 0.6368. Gold traded 20 points yesterday and expected to trade 10 points today. SPX traded 31 points yesterday and within the 25 point framework. Max today is right at 47 pips. 

US CPI offered the first positive surprise on inflation in a long time being flat on the month of July versus consensus expectations of 0.2% m/m. And it was not all due to lower gasoline prices as core inflation also undershot expectations rising 0.3% m/m versus consensus of 0.5% m/m. The good news is that there are clear signs that pressure on goods prices are easing: commodity prices have come down, freight costs are lower, supply chains are easing and pricing power is weaker as demand has softened and inventories are high. We also see tentative signs that inflation expectations have peaked. However, it is too early to declare victory over US inflation as several Fed speakers also highlighted afterwards. The labour market is still very tight and employment growth has not yet cooled down suggesting that wage growth will continue to run high. It is currently close to 6%, which is much too high to bring inflation back to 2% on a sustained way. Hence, we still look for the Fed to hike 75bp on 21 September to get rates quickly back to neutral and into restrictive area. Admittedly the probability of only 50bp has increased and the decision will most likely be determined by the next round of payrolls and inflation in early September. In the euro zone the inflation picture has been further complicated over the summer by a strong rise in gas and electricity prices. The warm weather has increased demand for air-conditioning and curtailed electricity production due to droughts that lower water levels in reservoirs and rivers and also led to a reduction in French nuclear power production. For environmental reasons French nuclear plants face restrictions on discharging water into waterways when river temperatures get too high. French electricity prices have doubled over the past three months and are now 10 times higher than in April. The increase is set to push up inflation even further and add to recession risks, thus exacerbating the stagflationary environment. On the geopolitical front China concluded military exercises around Taiwan in what has been the largest scale drills around Taiwan ever. It comes in response to the visit by US speaker of the House Nancy Pelosi, which in China’s view is a breach of the ‘One-China policy’ and a further move towards supporting Taiwan independence. This week we sent out a paper looking into the background of the crisis and assessing the risk of war, see Research China: The risk of a Taiwan war and what it implies – part 1, 11 August. Markets mainly responded to the lower-than-expected US inflation print this week by sending equities and EUR/USD higher. Bond yields initially dropped following the release but moved higher again Thursday as optimism about lower inflation and slower rate hikes faded again. Looking into next week the main releases will be US data on retail sales, regional business surveys for August and housing data. In Europe we get the German ZEW and the final CPI print for August, which provides more details than the flash estimate. China will publish it monthly batch of industrial production, retail sales and home sales. Especially the latter will be interesting given the continued stress in the property market. Norges Bank is set to increase rates by 50bp on Thursday. Download The Full Weekly Focus

After July’s central bank meeting, the RBNZ hinted at concerns about slowing growth. Even heading into July’s meeting the Bank of New Zealand head of research warned that the latest ANZ Bank survey of business opinion was ’littered with indicators that fit with our view that the economy is headed into recession. There are now more reasons for the RBNZ to take a dovish tilt next week on August 17. Here is some of the recent data from New Zealand: New Zealand business PMI This missed expectations and fell into the contractionary territory of 49.7 down from the forecast reading of 54. This supported the negative outlook from BNZ’s head of research after the survey of business opinion. New Zealand labour data The unemployment rate was up to the highest estimate at 3.3%. The QoQ change was down to 0% from 0.4% expected and the participation rate fell too at 70.8% vs 71% expected. New Zealand electronic card spending The New Zealand consumer was spending less with retail card spending down y/y in July to -0.5% vs 0.8% expected and down from 2.9% prior. Goldman Sachs sees recession risk for New Zealand Goldman’s model sees a 30-35% chance of a New Zealand recession with a sharp US downturn increasing that to 50-60%. So, although the RBNZ is expected to hike by 50 bps on Wednesday, 17th August, the RBNZ seems likely to mention the slowing growth metrics. One ray of hope has come from the last ANZ business confidence print of -56.7, which was better than the -65 expected. However, the report by itself may not be enough to allow the RBNZ to ignore slowing growth data. NZD data The best opportunities will likely come from this situation: 1. If the RBNZ only hikes by 25 bps and stresses slowing growth concerns then look for the following likely reactions: NZD selling AUDNZD buying 2. If the RBNZ hikes by 50bps (as expected), but stresses slowing growth and rising recession risks then expect the following likely reactions: NZD selling AUDNZD buying The main risk to this outlook would be an unexpected reaction to the announcement. Also, be aware that sentiment can change very quickly, so always manage risk carefully. Learn more about HYCM

Gold closed the fourth straight week in positive territory. Despite the soft US inflation data, the greenback managed to stage a recovery. XAU/USD needs to flip $1,800 into support to target $1,830. Gold started the week on a bullish note and climbed above $1,800 for the first time since early July mid-week before losing its traction. With the dollar staying surprisingly resilient against its rivals despite the soft inflation data, XAU/USD stayed under modest bearish pressure in the second half of the week. The Federal Reserve will release its July policy meeting minutes next week and market participants will look for fresh clues regarding the size of the US central bank’s next rate increase. What happened last week? The dollar rally that was fueled by the impressive jobs report on Friday lost its steam at the beginning of the week as investors booked their profits ahead of the highly-anticipated US inflation data. Gold gained nearly 1% on Monday and closed the day near $1,790. In an appearance before the Kansas Bankers Association over the weekend, Fed Governor Michelle Bowman said that she strongly supports super-sized rate increases to fight inflation but market participants refrained from further betting on a 75 basis points September hike.  With the trading action remaining subdued on Tuesday, gold managed to continue to push higher toward $1,800 amid retreating US Treasury bond yields. The data from the US revealed that the Unit Labor Costs rose by 10.8% in the second quarter, above the market expectation of 9.5%. The US Bureau of Labor Statistics reported on Wednesday that inflation in the US, as measured by the Consumer Price Index (CPI), declined to 8.5% on a yearly basis in July from 9.1% in June. Additionally, Core CPI, which excludes volatile food and energy prices, remained unchanged at 5.9%, falling short of analysts’ estimate of 6.1%. With the initial market reaction, the dollar came under heavy selling pressure and gold touched its highest level in a month above $1,800. According to the CME Group FedWatch Tool, the probability of a 75 bps Fed rate hike in September dropped to 30% from 70% ahead of the CPI data release. In turn, the benchmark 10-year US Treasury bond yield fell as much as 4%, fueling XAU/USD’s rally. FOMC policymakers, however, reminded markets that they will not overreact to a single inflation data. Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly both noted that they were still far away from declaring victory on inflation. On a hawkish note, Chicago Fed President Charles Evans said that the Fed was not finished with rate hikes and added that he was expecting the fed funds rate to top out at 4%. Following these comments, the odds of a 50 bps September rate increase declined below 60% on Thursday, causing gold to pull away from monthly highs toward $1,790. In an interview with Bloomberg late Thursday, Daly acknowledged that she was keeping an open mind about a 75 bps rate hike in September. The USD staged a rebound on Friday and forced XAU/USD to stay on the back foot. Finally, the University of Michigan's Consumer Sentiment Survey for August revealed that the long-run inflation outlook edged higher to 3% from 2.9%. This data helped the dollar continue to outperform its rivals and capped gold's upside ahead of the weekend.  Next week Retail Sales data from China will be looked upon for fresh impetus at the beginning of the week. Investors expect sales to rise by 5% on a yearly basis in July following June’s increase of 3.1%. Although the impact of this data on gold’s valuation is likely to remain short-lived, a weaker-than-expected print could weigh on the risk sentiment and drag XAU/USD lower by providing a boost to the dollar and vice versa. On Tuesday, Building Permits and Housing Starts data for July will be featured in the US economic docket. The real estate market is under pressure amid rising mortgage rates and investors grow increasingly concerned about a possible housing crisis. Hence, a sharp decline in Housing Starts could trigger a flight to safety and help the dollar gather strength. The US Census Bureau will release the Retail Sales data for July and the FOMC will publish the minutes of its July policy meeting. The publication is likely to reaffirm that policymakers will continue to watch the data before committing to a specific size of a rate increase in September. If the minutes show that the Fed sees a heightened risk of recession, the greenback could lose interest and open the door for a leg higher in gold. On the other hand, investors could reassess the Fed’s rate outlook in case they are convinced that the Fed will stay on an aggressive tightening path until they see consecutive drops in...

The Consumer Sentiment is expected to have improved further in August.  Market players turned optimistic amid signs of receding US inflation.  USD will likely react to sentiment instead of to the Michigan report. The Michigan Consumer Sentiment Index is expected to have improved further in August after plummeting to a record low of 50 in June 2022. It managed to bounce to 51.1 in July, a  figure later revised to 51.5. Market analysts are expecting this August’s preliminary estimate to print at 52.5. Such an improvement should add to the ongoing relief brought by US inflation figures. Inflation eases, optimism raises  Last month, and according to the aforementioned survey, consumers were worried about the falling standard of living due to continued price pressures. At the same time, inflation expectations cooled in July, somehow confirmed by the Consumer Price Index, which remained flat in the month, and increased by 8.5% YoY, much better than the previous 9.5%. Expectations that inflation has begun subsiding will likely boost consumption, moreover considering that the Federal Reserve is now seen decelerating its pace of quantitative tightening. The downside is that inflation would need to shrink at least for two more months in a row to confirm a top and that the US is technically in a recession. The fact that the Fed may no longer need to hike rates aggressively takes some steam off growth pressures. Possible USD reactions to the news The effects of upbeat US data would take some time to show in households, but it is quickly reflected in financial markets.  Upbeat confidence will do more good than the bad a soft number can do. Still, the report will affect sentiment, with the latter providing direction to the greenback. A better-than-expected reading should further underpin Wall Street and weigh on the American currency, particularly against high-yielding rivals. The opposite case scenario has a few chances of hitting equities but could force some profit-taking ahead of the weekend. US indexes may then retreat from their highs and help the greenback to trim some of its recent losses. In a weakening dollar scenario, the AUD/USD pair seems to be the one with better chances of rallying.  The pair has finally taken over the 61.8% retracement of its June/July decline at 0.7050, and as long as the level holds, there’s room for a complete retracement towards the top of the range at 0.7282. Below the mentioned support, on the other hand, could result in a slide towards the next Fibonacci support at 0.6980. 

European markets finished at their highest level in 2 months yesterday after US CPI surprised to the downside, and oil flows in the southern part of the Druzhba pipeline restarted after being closed down at the end of last week.   US markets also underwent a strong session with the Nasdaq 100 leading the way higher, after US CPI fell to 8.5% in July, while core prices remained steady at 5.9%, a trend that has continued with strong gains in Asia markets, which look set to translate into a higher European open. The bigger than expected fall in the headline number, along with the weaker than expected core reading, has prompted the hope that the Federal Reserve may not need to be as aggressive on rate hikes when it meets to raise rates in September. Consequently, rate rise expectations have fallen from 75bps to 50bps, prompting a decline in US 2-year yields, though some of the fall in yields was pared back after Chicago Fed President Charles Evans played down the importance of a single CPI reading. He said he still expects to see the Fed Funds rate at 3.75% to 4% by the end of 2023. By contrast Minneapolis Fed President Neel Kashkari wants to see the Fed Funds rate at 3.9% by year end, and 4.4% by the end of 2023.  In essence the Federal Reserve is likely to want to see further evidence of an inflation slowdown, and even then, they will also want to see it fall back to half the level it is now. This would suggest that any talk of rate cuts is premature, and in all likelihood for the rest of this year. Ultimately any slowdown in inflationary pressures needs to be viewed through a prism of whether we see rate hikes of 50bps or slower, post the September meeting. To that end with recent weakness in prices paid data pointing to a similar slowdown in inflation, todays PPI numbers, which tend to be more forward looking are likely to be as important, if not more so when it comes to what’s coming from the next CPI number, which comes during the Fed blackout period, just before the September meeting. In June US PPI unexpectedly jumped back to 11.3%, raising concerns that further inflationary pressure was building up in US supply chains. This jump in headline PPI was unexpected given that there had been little indication of such upward pressure in the equivalent prices paid numbers for the same month. This downward trend was repeated for the same prices paid numbers in July. Unlike the headline numbers, core prices continued to fall away from their March peaks in June and it is expected this will continue in today’s July numbers. Excluding food and energy, prices fell from 8.5% to 8.2% in June with the hope that this wider trend can continue into July, with an expectation of a fall to 7.7%. There is some evidence that the June spike may have been a one-off given the sharp falls in prices paid numbers over the past two months. Expectations are for headline PPI to fall back to 10.3%, from 11.3%. 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. Weekly jobless claims are expected to continue rising in the latest numbers due to be released at the same time with 265k, up from 260k.   EUR/USD – Snapped up to 1.0370 and the 50-day MA before slipping back, thus keeping the downtrend intact the January highs. Pullbacks are now likely to find support around the 1.0270/80 area which acted as resistance through the middle part of July. Below 1.0260 targets 1.0150  GBP/USD – Tested the neckline of possible inverse H&S formation at 1.2280. A break through 1.2300 targets a move towards 1.2600. Interim support at the lows this week at 1.2030 and the 1.1980 area. EUR/GBP – Failed at the 0.8480 area, sliding back towards the 0.8400 area. Below 0.8400 targets the 0.8340 area.    USD/JPY – Having failed at the 135.60 area, we slid back below the 134.20 area, and cleared out a move towards 132.00. The next key support lies at cloud support at 131.60, with a close below here targeting the 130.20 area, and the lows this month.  FTSE 100 is expected to open unchanged at 7,507. DAX is expected to open 78 points higher at 13,779. CAC40 is expected to open 32 points higher at 6,555.

EUR/USD - 1.0301 As euro's recent daily choppy swings from August's 1.0293 high had ended with Wednesday's jump to a 5-week peak of 1.0368 after softer-than-expected U.S. CPI, suggesting rise from July's 20-year 0.9953 bottom would head towards 1.0418 before prospect of a strong retreat later. On the downside, only a daily close below 1.0265/70 would indicate a temporary top is in place and risk stronger retracement towards 1.0247, then 1.0203. Data to be released on Thursday U.K. RICS housing price balance, Japan market holiday, Australia consumer inflation experience, U.S. initial jobless claims, continuing jobless claims and PPI.