US inflation data to turn USD weakness around?
The dollar continues to weaken ahead of the US consumer price index (CPI) later today, trading at its lowest since 8 May against the euro.
Headline CPI is expected to decelerate to 3.1% in June year-on-year (YoY), down from 4% in May. Core CPI growth is also expected to slow to 5%, after a 5.3% print in May. If that stubborn inflation continues though, will it have the power to add weight back in the dollar?
(Video Transcript)
USD
The USD continues to weaken in the markets in today's trade. We've seen a real march lower for the US dollar. I'll show you the chart here for what's going on with the dollar basket, which you can see quite clearly. This is the basket of currencies against the US dollar, and the dollar has fallen in the last couple of days.
It's broken that line of support at 181:47. It's on its way now down to the lows we saw back on the 14th of April at 137. In the longer-term picture, you can see that once it breaks this level, it will be lower than where we are. The next line of support goes down to 97 and 68. In amongst some of the other moves that we see in the markets, this is sterling trading up against that weaker US dollar.
Consumer price index
Now, not too far away from the 130 level, we’ve been talking a lot about this recently, and once it crowns that, I think there is further potential upside to go. The headline consumer price index in the US is expected to decelerate to 3.1% in June year on year, down from 4% in May. Core CPI growth is also expected to slow to 5% after printing at 5.3% in May. Since March, the headline US CPI figure has been below core inflation.
Energy prices
Energy prices have substantially fallen, but broad-based inflation seems more stubborn. The real big trade around the release later today will be this. This is the euro trading against the dollar, with the euro rising against that weaker USD in yesterday's session. We rose to but didn't quite close beyond the 110/12 level, which was the previous line of resistance.
EUR/USD
It has now got an entire candle above that, and we are now trading there at levels not seen pretty much since the beginning of May this year. So, the EUR/USD would seem to be the way to trade these long euros against the US dollar. If you are long on this on a day-trade basis, your stock goes below the 110 level.
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