The US dollar strengthened against the other major currencies since mid of July after the US reported lighter-than-expected CPI data for June. The upward movement suggests that market players may expect inflation to re-accelerate and promote the Fed to keep the hiking cycle for longer. Fitch’s US credit downgrade sent the US bond yields to surge and boosted the USD. Global markets’ risk sentiment soured following the event, which also led to risk-aversion trades, strengthening the haven currency, USD. The upcoming US CPI could be a pivotal economic event for the currency market’s movement. A lowered-than-expected US inflation may upend the recent US dollar’s uptrend, and elevated data could continue to buoy the greenback. US headline CPI cooled for 12 consecutive months since peaking at 9.1% in June 2022. Hence, a reversal move in inflation can be shocking for the broad market. Bloomberg’s consensus calls for an annual rate of 3.2% increase for July, up from 3% in June. Below are the trending charts for three major currency pairs, AUD/USD, USD/JPY, and EUR/USD.
The pair formed a potential double-top since mid-June and is approaching imminent support of the bottom band of the triangle pattern, confluence with the lower band of the Bollinger bands, and 23.60% Fibonacci retracement. There might be a rebounding opportunity at such support, ranging from between 0.6470 and 0.6530. RSI is near overbought territory, which may suggest that a near-term rebound is expected.
Another cooled CPI data could be a catalyst for the rebound, but on the flip side, sticky inflation data may take the pair to breakout at the pivotal support and take it to the previous low of about 0.62.
The pair rebounded from the lower band of the ascending channel since BOJ tweaked its monetary policy in late July. While the uptrend is intact, it faces an imminent resistance of about 143.70, which was the day-high on 3 August. A further potential resistance can be around the high of about 145 in early July. The near-term support can be found at the 50-day moving average of 141.39.
Note that the RSI may enter an overbought territory before the CPI data is announced if the prevailing trend persists before Thursday. This could cause a retreat in the pair when it tests the resistance.
The Eurodollar is still on a rebounding trend against the US dollar since late September 2022. The reason behind it is the ECB’s persistence on rate hikes to tame the region’s inflation. ECB’s monetary stance is seen as more hawkish than the Fed. Technically, the pair moves in an ascending channel since January but hit a peak in mid-July and has trended down since. The near-term downtrend is still intact, but it encounters support of the 50-day moving average of 1.09 on 3 August. A breakdown of this level could take the pair to test the lower channel band of about 1.0747. On the flip side, it could continue the rebounding momentum if holding above the 1.09 handle and test the July high of above 1.24.