USD falters ahead of US CPI, ASX set to track Wall Street higher? Asian Open

If there’s a case to be made that traders simply see what they want, it is visible in the US dollar’s reaction compared to headlines. Jerome Powell said that whilst he expects inflation to move lower, it likely won’t be as quickly as he expected. And US producer prices were hotter than expected on the eve of a Key CPI report, Yet traders took more notice of that fact that prior figures were revised lower. Perhaps I’m wrong to do so, but I would place greater emphasis on incoming data over downward revisions of past data. Yet with bond yields and the US dollar lower, who am I to argue.

• The US dollar closed below 105 and US yields were broadly lower on bets the Fed could cut rates this year.
• Fed fund futures now imply a 51% chance of a September rate cut, or 45.2% chance of one in November.
• GBP/USD was the strongest major thanks to firmer economic data bringing doubt to a June rate cut by the BOE
• A bullish engulfing day formed on NZD/USD, AUD/USD closed at a 6-day high
• Gold recouped most of Monday’s losses to reveal demand around $2333
• Wall Street indices pushed higher to see the S&P 500 trade just -0.34% from its all-time high, whilst the Nasdaq 100 is -0.77% below its record high

US dollar index (DXY) technical analysis:

We didn’t see the expected bounce on the US dollar, which instead has closed below 105 with an outside day and is now trying to hold above the 50-dy EMA. Yet I remain unconvinced prices will simply fall to my 104.50 target unless CPI data comes in very soft later today. RSI (2) is approaching oversold, and the 50-day EMA is likely to provide a level of support, at least initially.

BOE June cut appears less likely

UK data threw an inevitable spanner in the work for a potential June cut from the BOE, with earnings remaining relatively high at 6% (or 5.7% y/y including bonus, above 5.3% expected and unchanged from prior). The jobless claimant amount also fell to 8.9l (13.9k expected) and prior revised to -2.4k from 10.9k. -177 jobs were lost, but this was not as bad as the -215k consensus estimate. Still, BOE’s Chief Economist Pill said that it was “not unreasonable” to consider rate cuts over the summer, although it is unclear whether this refers to June or August. My bet August, and the rebound of GBP appears to back this up.

US-China trade war heating up one more

Shots have been fired by the Whitehouse after they unveiled steeper of tariffs on China, which include EV batteries, medical products and computer chips. EV duties have quadrupled from 5% to 100% and semiconductors have been doubled to 50%. Clearly this is a ploy to look tough on China in the name of in the name of American jobs in the lead up to the elections. Yet it is worth pointing out these inflationary policies could become an own goal and spark a fresh trade war. As expected, China were quick to vow retaliation and take measures to defend its interests.

Economic events (times in AEST)

• 09:50 – Japan foreigner stock/bond purchases
• 11:30 – Australia wage price index
• 19:00 – Euro GDP, employment, industrial production
• 22:30 – UC CPI, retail sales
• 00:00 – Fed Vice Chair for Supervision Barr Speaks, US business inventories, retail inventories
• 02:00 – Fed Atlanta GDPnow

ASX 200 technical analysis:

• The ASX 200 cash index formed a relatively small bearish outside / engulfing day as it retraced against last week’s bullish range expansion
• Given Wall Street remains supported and SPI futures were higher overnight, I suspect the cash index is building up for another leg higher
• SPI 200 futures are on track for a bullish engulfing day, and prices have been coiling up within a small symmetrical triangle pattern which assumes a bullish breakout
• The 1-hour chart shows a volume cluster around 7780, so any low-volatility retracements towards the 7772 low could be appealing to bullish swing traders
• RSI (2) is overbought, hence the bias for an initial retracement lower before the anticipated breakout occurs
• A break above 7800 assumes bullish continuation, and brings the 7580 high into focus, below the 7866 high-volume nice

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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