Softer US inflation could further fuel the US risk rally [Video]

(Ipek Ozkardeskaya – Swissquote Bank Ltd)

Global indices made a solid start to the week. The EuroStoxx 600 closed yesterday 1.76% higher on news that the Ukrainians are doing well pushing back the Russians in territories they launched a counteroffensive attack. The S&P500 and Nasdaq advanced more than 1%, despite chatter of rail strike in the US. Hope of softer US inflation is what keeps the bulls running.

US inflation data is due today, and the CPI is seen easing toward 8.1% in August versus 8.5% printed a month earlier, and 9.1% peak printed the month before. A second month of soft inflation read has the power to soften the Fed hawks and increase the bets of softer rate hikes beyond September, whereas a figure above expectations, or worse, a figure above last month’s read could snap the latest rally and send the stocks tumbling. We are tilted toward a softer read than not.

Hope of a soft inflation data is also what’s pulling the US dollar lower across the board. The dollar index tipped a toe below the 108 mark yesterday, while the EURUSD made an attempt above its 50-DMA, as news that Ukrainian troops are being successful in their counteroffensive attack, and chatter that voices are rising in Russia against the regime’s strategy in Ukraine, brought forward the possibility of Russia being defeated in Ukraine. Cable flirts with the 1.17 level, the dollar-swissy retreated to 0.95 and the USDCAD slipped below 1.30.

The American crude rallied more than 2% yesterday on improved market sentiment, and flirted with the $90 offers, without however being able to clear them. Gold and silver are also better bid into the inflation data, thanks to a broadly softer US dollar.

Daily technical and trading outlook – GBP/USD

(AceTrader Team)

Trend daily chart

Down

Daily Indicators

Turning up

21 HR EMA

1.1676

55 HR EMA

1.1632

Trend hourly chart

Near term up

Hourly Indicators

Easing fm overbought

13 HR RSI

14 HR DMI

+ve

Daily analysis

Consolidation b4 one more rise

Resistance

1.1792 – 61.8% of 1.1406-1.1647 fm 1.1551
1.1761 – Aug 30 high
1.1710 – Mon’s high

Support

1.1647 – Last Fri’s high (now sup)
1.1600 – Mon’s low
1.1551 – Last Fri’s NY low

GBP/USD – 1.1696.. Cable also swung widlly in tandem with euro on Mon. Price gapped higher to 1.1660 (NZ) n then retreated to 1.1600 in Asia but then rallied on renewed usd’s weakness n cross-buying in sterling to 1.1710 in NY.

On the bigger picture, despite cable’s brief break of 2016 post-Brexit low of 1.1491 to a near 35-year trough of 1.1412 in mid-Mar 2020 on safe-haven USD’s demand following free fall in global stocks, rally to 1.3686 on the last trading day of 2020 following a last-minute EU-UK trade deal, then to a 3-year peak of 1.4250 in May 2021 suggests low is in place. Having said that, cable’s subsequent sharp fall on market’s negative outlook on UK’s economy to 1.1761 in July this year suggests re-test of 1.1412 would be seen, however, o/sold reading on daily indicators should keep price abv psychological 1.1000 handle. Only a weekly close abv 1.1718 confirms temp. low made n heads twd 1.2300.

Today, cable’s gain to Mon’s 12-day high of 1.1710 signals recent down trend has made a temp. low at last Wed’s 37-year trough at 1.1406 n as long as 1.1647 holds, further gain is envisaged, ‘bearish divergences’ on hourly indi- cators may cap price at 1.1761. Below 1.1600 signals top n risks 1.1551/55.