US CPI data fell shy of estimates last Friday, suggesting inflation pressure remained below the market’s expectation.

This could make the Fed cautious about raising interest rates in December. The Consumer Price Index rose 0.1% in July on a quarter-to-quarter basis, compared to the 0.2% increase expected by market participants. On a year-on-year basis, the CPI had risen by 1.7% over July 2016’s figure, and by 1.6% in June over the June 2016 figure. This still fell below the Fed’s target rate of 2.0%.

Soft inflation will continue to weigh on expectations of rate hikes. The dollar index fell as much as 0.5% to 92.83 after the data, before coming back to the 93.0 area this morning. EUR/USD rebounded to the 1.181 area, with its immediate support and resistance levels at 1.177 and 1.185 respectively. 

Separately, Japan’s second-quarter GDP surprised many with a 4% quarter-on-quarter growth rate compared to consensus forecasts of 2.5%. This signalled a sixth straight quarter of economic expansion, led by private consumption and capital expenditure. Faster than expected GDP growth usually indicates inflation pressure and thus proves bullish for the currency. However, technically speaking, USD/JPY has found some support near the 109.0 area and is about to form a bullish double bottom pattern if this support level holds. 

Precious metals retraced this morning as the market calmed down during the weekend after reassessing the likelihood of a nuclear war in North Asia. This week, major economic events including Chinese industrial production, German GDP, European employment and retail sales data are likely to dominate market movements. 

Technical Analysis:

USD/JPY - Cash

  • Immediate support level at 109.0 area (double bottom)
  • 10-Day Simple Moving Average remains bearish (sloped downward)
  • SuperTrend (10,2) remains in bearish set-up (red colour)
  • Momentum indicator RSI has touched the oversold zone of 30% and since rebounded 

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