Dollar Plummet on Soft CPI

• The dollar dipped as the CPI came softer than the market expectation and fuels hope for a September rate cut. 

• Gold trades with strong bullish momentum and is heading to its all-time high territory.  

• Possible Japanese Authority intervention led to the Yen strengthening against the U.S. dollar by nearly 2% in the last session. 

Market Summary

The highly anticipated U.S. CPI report met expectations with a figure below market consensus, shaking up financial markets. The dollar plummeted to its lowest level since last month amid heightened speculation of a dovish Fed stance. Concurrently, the U.S. equity market experienced a notable anomaly, marked by significant declines. This anomaly is attributed to investors shifting capital from mega-cap stocks to small-cap stocks, which are more sensitive to interest rate movements.

Meanwhile, taking advantage of the weakened dollar, the Japanese Yen saw a sharp increase against the dollar, reaching 157.45 before retracing. Reports suggest that Japanese authorities intervened in the market to stabilise the currency, although official responses have not been issued regarding the price movements. In the UK, yesterday's GDP release surpassed market expectations, propelling the Pound Sterling above the 1.2900 mark against the dollar and restoring confidence in the currency.

In the commodity markets, gold benefited from the weakened dollar, surging above the $2400 level. Similarly, oil prices were bolstered by optimistic reports from the U.S. IEA indicates strong demand within the country and a positive outlook for future demand.

Current rate hike bets on 31st July Fed interest rate decision: 

Source: CME Fedwatch Tool

0 bps (91.2%) VS -25 bps (8.8%) 

Market Movements

DOLLAR_INDX, H4

The Dollar Index declined to its lowest level in a month following the soft CPI reading, which has led the market to expect a Fed rate cut as early as September. This dovish outlook has also influenced the fixed assets market, with U.S. Treasury yields climbing to their highest levels since February. This suggests that traders are positioning themselves for a potential shift in Fed monetary policy.

The dollar index declined nearly 0.5% in the last session, but strong support was witnessed above the $104 mark. The index is expected to have a technical rebound at such a level in the short term. The RSI has dropped into the oversold zone while the MACD has crossed before breaking above the zero line, suggesting the bearish momentum is overwhelming. 

Resistance level: 104.75, 105.15

Support level: 104.10, 103.70

XAU/USD, H4

Gold prices have gained nearly 1% this week, trading above the $2400 mark for the first time since May, indicating a bullish bias for the precious metal. The dovish expectations on the Fed, fueled by the soft CPI reading, have contributed to the upward momentum for gold. Should today's PPI (Producer Price Index) fail to meet market expectations, it could further propel gold prices towards testing its all-time high level at $2450.

The gold continues to trade within its bullish momentum and is not far away from its all-time high level, suggesting a bullish bias for the gold. The RSI has broken into the overbought zone while the MACD is diverging above the zero line, suggesting the bullish momentum is gaining. 

Resistance level: 2430.00, 2450.00

Support level: 2388.00, 2368.00

GBP/USD，H4

The GBP/USD pair surged to nearly a one-year high in the last session, driven by several factors that fueled its upward momentum. The UK's GDP reading surpassed market expectations, boosting confidence in the Sterling and signalling strong economic performance than expected. The U.S. dollar weakened significantly due to the lower-than-expected CPI reading, which prompted market speculation about an upcoming rate cut by the Federal Reserve. This dovish expectation further pressured the dollar.

The GBP/USD is currently trading with extremely strong bullish momentum, and it is trading above the 1.2900 mark for the first time this year. The RSI has risen to the overbought zone, while the MACD edged higher, suggesting that the bullish momentum remains strong. 

Resistance level: 1.2940, 1.3000

Support level: 1.2850, 1.2760

EUR/USD，H4

The EUR/USD pair climbed to its highest level since June but faced strong resistance at the 1.0900 mark, resulting in a potential technical retracement. Despite the weakened U.S. dollar, the pair's gains were limited by regional political uncertainties, which hindered the euro's strength.

EUR/USD's continued trading within its uptrend trajectory suggests a bullish bias for the pair. The RSI has been hovering in the upper region, while the MACD has been flowing above the zero line, suggesting the pair remains trading with bullish momentum. 

Resistance level: 1.0900, 1.0940

Support level: 1.0853, 1.0816

Nasdaq  (US100), H4

Despite the softer U.S. CPI reading and heightened dovish expectations for the Federal Reserve—factors that typically favor the equity market—the Nasdaq experienced a significant decline in the last session. The increased speculation of a Fed rate cut has notably boosted the U.S. small-cap index, which is highly sensitive to interest rate changes. Consequently, investors appear to be rotating their capital into small-cap stocks, leading to a substantial slide in mega-cap tech stocks.

The Nasdaq experienced a technical retracement in the last session but was able to find support at above the 61.8% Fibonacci retracement level, suggesting the index remains trading with its bullish trajectory. The RSI slid sharply from the overbought zone, while the MACD dropped to near the zero line from above, suggesting the bullish momentum is vanishing. 

Resistance level: 20320.00, 20550.00

Support level: 20140.00, 20000.00

USD/JPY, H4

The USD/JPY witnessed a significant price movement in the last session, experiencing a sharp decline of nearly 2%. This decline began after the U.S. CPI data revealed a softening dollar, which many believe prompted intervention by Japanese authorities, taking advantage of the dollar's weakness. However, Japanese officials have yet to confirm this intervention. Consequently, the USD/JPY pair is expected to exhibit significant volatility in the near term.

The USD.JPY recorded a significant decline in the last session, but support at above 157 is found, and the pair may have a technical rebound from such a level. The RSI has dipped into the oversold zone, while the MACD is diverging below the zero line, suggesting the pair is now trading with strong bearish momentum. 

Resistance level: 159.85, 160.50

Support level:157.90, 157.20

CL OIL, H4

Oil prices edged slightly higher in the last session, buoyed by a softer dollar following the U.S. CPI reading, which indicated further easing of the inflation rate. This dovish economic signal has weakened the dollar, making commodities like oil more attractive. Additionally, the U.S. Energy Information Administration (EIA) report revealed a significant decline in crude stockpiles, surpassing market expectations and indicating robust demand for crude oil in the country.

Oil prices broken above their short-term resistance level suggest a bullish signal for oil. The RSI is improving from near the oversold zone while the MACD is on the brink of breaking above the zero line, suggesting bullish momentum is forming. 

Resistance level: 84.20, 86.35

Support level:81.40, 79.70