Forex Signals US Session Brief, July 17 – Inflation Holds Steady
Skerdian Meta • 4 min read
Today seems to be another quiet day after the advance we saw in the USD yesterday, following the positive retail sales report, which reinforced the opinion that the US consumer is still strong. The USD attracted some bids after that report, putting the Buck back on the bullish trend. Today though, markets have been really quiet. We have had a number of inflation report coming out today, but they couldn’t move markets much.
It started with the inflation report from the UK early this morning. Headline CPI (consumer price index) remained at 2.0% which is a really decent level, not too high, nor too low either, while core CPI ticked higher to 1.8% from 1.7% in May. Yet, the GBP keeps sliding lower and GBP/USD is trying to break below 1.24 now.
The inflation report form the Eurozone leaned on the positive side as well. The final reading for the core CPI remained unchanged at 1.1%, which is not great, but at least it’s not falling further. Headline CPI ticked higher to 1.3% from 1.2% in the initial reading in June. Although, that doesn’t change much with regard to the economic slowdown, so the Euro didn’t mind the inflation numbers either. In Canada, CPI inflation declined by 0.2% in June, but the annualized number remained unchanged at 2.0%, which is a good level as well.
The European Session
- ECB’s Coeure Speaking – ECB governing council member Benoit Coeure was speaking early this morning saying that the governing council is determined to act in case of adverse contingencies. The ECB stands ready to adjust all of its instruments as appropriate but needs to ensure inflation continues to move towards target. Economic data, survey information points to somewhat weaker growth in Q2, Q3. Risks surrounding euro area growth outlook continue to be tilted to the downside. Underlying inflation is expected to increase in the medium-term
- UK CPI Inflation Report – The UK inflation report was released this morning, with headline CPI YoY remaining unchanged in June at 2.0%. Core CPI YoY ticked higher to 1.8% as expected, up from 1.7% in May. The HPI house price index moved lower to 1.2% as expected, down from 1.4%. June CPI MoM remained flat at 0.0% as expected. ONS notes that the increase in motor fuel prices YoY balanced out the decline in clothing, hence the flat reading for last month. PPI input (producer price index) inflation declined last month, coming at -0.1% against 0.1% expected, down from 0.3% in May. PPI output posted a massive -1.4% in June against -1.0% expected. Overall, the inflation report is positive, with the core CPI ticking higher and headline CPI remaining at 2.0%. But the GBP is still sliding as it has been doing in the last few sessions.
- Eurozone CPI Report – The inflation report from the Eurozone was released 30 minutes after the UK report; headline inflation ticked higher to 1.3% YoY against 1.2% expected and up from 1.2% in May. The final reading for the core CPI remained unchanged at 1.1% YoY. Inflation was declining fast in Q1, but in Q2 the decline has stalled. We have seen inflation rebound a bit in the last two months after the dive we saw in May. The ECB should be a bit relieved that inflation is not tumbling further, but it still remains pretty low.
- UK Barclay’s Speaking on Brexit – The UK Brexit secretary Stephen Barclay was commenting on his recent meeting with EU chief Brexit negotiator, Michel Barnier. He said that EU’s Barnier emphasized strong desire to avoid a no-deal Brexit. He added that there has been misleading information/reports on their meeting. Apparently, he told Barnier if withdrawal agreement remains unchanged, he believes that it won’t pass through parliament. Barnier thinks that the risk of a no-deal Brexit is under-priced.
The US Session
- US MBA Mortgage Applications – MBA mortgage applications for the week ending in 12 July came at -1.1% from -2.4% in the previous week. The purchase index also declined to 265.1 points from 275.6 prior, the market index declined to 500.2 points from 505.8 prior, while the refinancing index increased to 1,827.3 points from 1,799.7 prior.
- Canadian CPI Inflation Report – The inflation report from Canada was released abut an hour ago. Inflation declined by 0.2% in June, but it was a tad better than expectations which were for a -0.3% print. This is the first decline after several months when we saw a decent pickup in inflation. Common CPI remained unchanged at 1.8%. Median CPI ticked higher to 2.2% against 2.1% expected and 2.1% in May. Trimmed mean CPI lost 2 points, falling from 2.3% to 2.1%, against 2.2% expected. YoY CPI remained unchanged as well at 2.0% as expected. A decline in the monthly number but the annualized figures are more or less unchanged, with some of them balancing each other out, so nothing here for the Bank of Canada to change its course .
- US Housing Starts and Building Permits – US housing starts for June 1,253k vs. 1,260k estimate, which means down -0.9%. Although, the previous number was revised to 1,265k from 1,269k. Building permits for June came at 1,220k vs 1,300k estimate. That is down -6.1% from the prior month. Building permits for May were also revised higher to 1299K versus 1294K previously reported.
Trades in Sight
- The main trend is bearish
- The retrace higher is complete on the H1 chart
- The price is finding resistance around the 50 SMA
- Sentiment is still negative in financial markets
The bearish trend has continues for EUR/JPY
EUR/JPY has turned bearish this month after spiking higher at the beginning of July. During this period, EUR/JPY has lost more than 200 pips and the pullbacks to the moving averages have provided great opportunities to sell. The 200 SMA (purple) provided support at first, then it was the 50 SMA (yellow) which is again offering resistance around it for this pair. The pullback is now complete on the H1 chart and this area around 121.50 used to be support last month, which should also add some resistance.
Markets continue to remain quiet in the US session so far as well. The inflation reports couldn’t get things going for the GBP, the Euro or the CAD. The economic data is light for the next two days, so the market is not waiting for anything in particular, which tells us that traders are staying on the sidelines until they get something interesting to start trading again.