Rally in bund yields, hotter US inflation data and not-so-dovish Fed-speak stifles Fed rate-cut trade
Erik Bregar of Exchange Bank of Canada - InsideFutures.com - Fri Jul 12, 9:03AM CDT

ANALYSIS

USDCAD

Dollar/CAD is back in sell mode this morning after yesterdays short covering rally above the 1.3070s fizzled out at the next chart resistance level in the 1.3080s. Some slightly hotter core US CPI data for June and some less dovish than expected comments yesterday out of Fed members Barkin, Bostic and Quarles (which saw US yields catch a bid) seemed to be the catalyst for the rally, but we think this weeks clarity with regard to the monetary policy divergence between the Fed and the Bank of Canada and negative USDCAD chart technicals reasserted itself in traders minds by end of day. We think Tropical Storm Barry and its effect on oil prices here is icing on the cake for USDCAD shorts, but we would caution that the oil bid doesnt look panicky (August WTI still struggling to take out yesterdays high). The US just reported its June PPI data it came in hotter than expected: +1.7% YoY vs +1.6% on the headline, and +2.3% YoY vs +2.1% on the core (ex-food and energy) measure. Could this be the US/China tariffs finally getting passed through to US producers? When we combine this mornings data with yesterdays CPI data, we think this makes Jerome Powell look bad because he has flip flopped on the transitory nature of soft inflation and has now used persistently lower inflation as one of the Feds excuses for signaling a deep dive into a new rate cutting cycle. Why cant he tell us the real reason the Fed needs to cut rates? Or does he even know why? Next weeks North American calendar features US June Retail Sales and a speech from Fed chairman Powell in Europe (Tuesday), Canadian CPI for June (Wednesday) and Canadian Retail Sales for May (Friday).

USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

AUG CRUDE OIL DAILY

AUG CRUDE OIL DAILY


EURUSD

Euro/dollar is struggling to recover from its post US CPI losses this morning as US yields suddenly look perky again. Its as if the US bond market has totally forgotten about chairman Powells dovish external outlook (which he reiterated twice on capitol hill this week) and has decided to focus on a slight beat to US CPI for June and some more optimistic comments out of other Fed members yesterdayor its simply following the German bond market (which it has done for most of this year). We think the latter is the more likely reason for the US yield rally, and so we continue to continue to watch the bund yield here. The hotter than expected US PPI report for June has now seen a small wave of broad USD buying come in, but its been rather mild. We think traders are going to need a day to digest the surprising news and so we think EURUSD flounders here around the 1.1230-40s. A move back below the 1.1230s would be a decidedly negative technical development in our opinion, as it would erase all the markets progress since Powells dovish remarks on Wednesday.

EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

AUG GOLD DAILY

AUG GOLD DAILY


GBPUSD

Sterling is also having a hard time getting back above its pre US CPI levels from yesterday, and stubborn chart support (turned resistance) in the 1.2540-50s doesnt appear to be helping. The broader USD is seeing an uptick following the hotter than expected June US PPI figures just released, but support in the 1.2520s continues to hold. We think GBPUSD range trades here to close out the week. Next weeks UK calendar features a slew of important economic reports: May Employment report (Tuesday), June CPI (Wednesday), and June Retail Sales (Thursday).

GBPUSD DAILY

GBPUSD DAILY

GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY


AUDUSD

The Aussie is treading quietly below the psychological 0.7000 figure after buyers failed on a breakout attempt above the level in early European trade, and this mornings strong US PPI data for June is not helping the market in its attempt to probe higher once again. We think the buyers need to come back quick and close AUDUSD above the 0.7000 mark, otherwise we could see sellers build some confidence once again. Next weeks Australian calendar features the RBA Minutes from its last meeting on Monday night ET, and the Australian Employment report for June on Wednesday night ET.

AUDUSD DAILY

AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

SEP COPPER DAILY

SEP COPPER DAILY


USDJPY

Dollar/yen extended its post US CPI gains yesterday after the US 10yr bond yield broke back above the 2.10% level. Overhead chart resistance in the 108.60s has capped the gains in overnight trade so far today and it appears some EURJPY selling flows are dragging the market lower into NY trade (USDJPY ignoring the fact that US 10yr yields at now trading higher at 2.14% post US PPI). We think USDJPY range trades to close out the week. Support 108.10. Resistance 108.40.

USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

US 10YR BOND YIELD DAILY

US 10YR BOND YIELD DAILY

Charts: TWS Workspace

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