Inflation in the United States, as measured by the Consumer Price Index (CPI), declined to 8.5% on a yearly basis in July from 9.1% in June, the data published by the US Bureau of Labor Statistics revealed on Wednesday.

Developing story...

Follow our live coverage of the market reaction to US inflation data. 

USD/TRY fades Tuesday’s pullback and extends the side-lined trade for yet another session, always on the back of bulls’ lack of conviction to advance further north of the key barrier at the 18.00 yardstick.

In the domestic calendar, the jobless rate in Türkiye eased a tad to 10.3% in June vs. a month earlier.

Later in the session, all the attention is expected to be on the release of US inflation figures gauged by the CPI for the month of July.

Annual inflation in the US is expected to retreat to 8.7% in July from the multi-decade high set at 9.1% in June. The Core CPI, however, is forecast to edge higher to 6.1% from 5.9%. The dollar's valuation depends on the market pricing of the next Fed rate hike.

EUR/USD trades on a positive performance around the 1.0250 region midweek.

The so far August high at 1.0293 (August 2) emerges as the magnet for bulls for the time being. Above this level, spot is expected to see its uptrend reinvigorated and could challenge the temporary 55-day SMA in the near term, today at 1.0377.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0906.

DXY retreats for the third session in a row and challenges once gain the 106.00 neighbourhood ahead of the release of US inflation figures.

If the selling bias picks up extra pace, the dollar risks a deeper pullback to, initially, the August low near 105.00 (August 2).  This area of initial contention appears reinforced by the 55-day SMA, today at 105.19.

The short-term constructive stance is expected to remain supported by the 6-month support line, today near 104.50.

Furthermore, the broader bullish view in the dollar remains in place while above the 200-day SMA at 99.93.

“China’s economy continues to face the same set of challenges including COVID-19 resurgences and perhaps even greater pessimism in the domestic property market as well as high global energy and food prices.”

“In view of higher domestic risks, we continue to see prospects for the 1Y loan prime rate (LPR) to move slightly lower to 3.55% by end-3Q22 from current 3.70%.”

Wednesday's US economic docket highlights the release of the critical US consumer inflation figures for July, scheduled later during the early North American session at 12:30 GMT. The headline CPI is anticipated to rise by 0.2% during the reported month, down sharply from the 1.3% in June. The yearly rate is also expected to decelerate to 8.7% in July from the 9.1% previous. Meanwhile, core inflation, which excludes food and energy prices, is projected to rise by 0.5% in July and jump to 6.1% on yearly basis from 5.9% in May.

According to Eren Sengezer, European Session Lead Analyst at FXStreet: “A CPI print of 8.7% in July would suggest that inflation may have peaked in June. A reading of 8.8%, however, would show that prices continued to rise in July, regardless of the decline in the annual inflation rate. Investors will also pay close attention to the Core CPI figure, which excludes volatile food and energy prices.”

USD/CHF turns lower for the third straight day and drops to a one-week low on Wednesday. Modest USD weakness exerts pressure amid growing recession fears and US-China tensions. Investors might refrain from placing aggressive bets and wait for the crucial US CPI report.

“The Russian sanctions imposed by the EU and other Western countries do not lead to a collapse of the Russian economy. But they can be expected to significantly harm it in the longer-run. Indicators such as the RUB strength do not prove otherwise.”

“The EU's first four sanctions packages followed the economic logic of maximizing economic damage to the targeted country with minimal damage to the sanctioning countries. The fact that the EU nevertheless experienced deteriorating terms of trade, while the effect on Russia's terms of trade is ambiguous, is not due to the sanctions but to increased supply insecurity.”

“With the sixth sanctions package, the EU departed from its previous path. The purpose of the package was to reduce the effectiveness of Russian counter-sanctions as political leverage. This purpose cannot be fully achieved, because a balance must be struck between this goal and the economic damage within the EU.”

“The sanctions may not stop the...

EUR/USD is holding steady near 1.0200, extending choppy trading in the European session. The US dollar struggles to find demand amid weaker Treasury yields, as all eyes remain on the all-important inflation data. 

EUR/JPY extends the uptrend for yet another session and gyrates around the 138.00 neighbourhood.

Considering the ongoing price action, further upside in the cross appears likely for the time being. That said, the next temporary target aligns at the 55-day SMAs, today at 139.61. If the cross clears this area, the door could then open to a probable visit to the July top at 142.32 (July 21).

While above the 200-day SMA at 133.84, the outlook for the cross is expected to remain constructive. This contention zone also appears underpinned by the proximity of the August low at 133.39 (August 2).

“Indonesia's terms of trade have looked increasingly attractive over recent months, offering support to its current account position and the IDR. News that China has pledged to increase palm oil imports from Indonesia is another factor that will help on this front.” 

“We think BI will continue to defend the USD/IDR 15,000 level, which will act as a strong line in the sand.”

“Relatively higher real policy rates than other countries in Asia also offers the IDR more protection and we also see a strong chance that BI hikes this month, with the Bank shifting its stance towards a less accommodative one.”

 

“The BoE is forecasting GDP contraction for five consecutive quarters commencing in Q4 2022 and the baseline assumptions do not assume energy supply restrictions that result in blackouts and potentially major disruptions so we’d expect this story if confirmed to undermine confidence in the outlook for growth even further.”

“The pound is the 2nd worst performing G10 currency so far in August and we see no reason for that performance to change over the coming weeks.”

 

The US dollar is broadly stable to slightly stronger ahead of the key inflation data. All in all, economists at MUFG expect the greenback to enjoy further gains over the coming months.

USD/CAD meets with a fresh supply on Wednesday and erodes a part of the overnight gains. Subdued USD price action turns out to be the only factor exerting some downward pressure. Weaker oil prices could undermine the loonie and lend support ahead of the US CPI report.

EUR/USD is holding steady near 1.0200, extending choppy trading in the European session. The US dollar struggles to find demand amid weaker Treasury yields, as all eyes remain on the all-important inflation data. 

GBP/USD gains some positive traction on Wednesday amid subdued USD price action. Recession fears, the BoE’s gloomy outlook could act as a headwind and cap the major. Traders might also prefer to move on the sidelines ahead of the crucial US CPI report.

China's military said on Wednesday that they have completed various tasks around Taiwan and noted that they will continue to carry out military training to be "combat-ready," as reported by Reuters.

The People's Liberation Army's Eastern Theatre Command said they will keep a close eye on changes in the situation while conducting regularised patrols in the Taiwan Strait. 

AUD/USD reverses modest intraday slide, through the uptick lacks bullish conviction. Subdued USD price action turns out to be a key factor lending support to the major. The cautious mood caps the risk-sensitive as the focus remains on the US CPI report.

EUR/USD is holding steady near 1.0200, extending choppy trading in the European session. The US dollar struggles to find demand amid weaker Treasury yields, as all eyes remain on the all-important inflation data.