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CPI Will Set the Tone of Q3

July 8, 2024
Frank Cabibi

This Thursday will be the release of some important numbers on inflation. Core CPI is expected to remain stubborn on a month-to-month basis. Investors look to the back half of the year to whether the Fed will shed some relief on interest rates, and it comes down to CPI on Thursday.

Aussie Catches Strength

AUDUSD is the strongest Bullish reading on the EdgeFinder at +11. Almost every metric points towards Aussie strength over the dollar. CPI was higher for AUD, so it currently has a positive score on the pair. However, this could change come Thursday.

A major reason AU is seeing more bullish demand could be due to the fact that RBA kept rates unchanged in their last bank meeting. Meanwhile, there are high hopes for a 25 bp cut in the US in September.

Global Dovish Policy

We are now entering the turning point in quantitative tightening around the world. A global drop in CPI from 2022 has many banks looking to cut if they haven't done so already. The reason gold has struggled to move is likely due to the dollar waiting longer than the rest to cut.

However, looking forward, it seems that these rates are going to be lower. And this trend will continue for the next few years. Once gold gets confirmation from the Fed that they're cutting regardless of the economic condition, it should be bullish for gold.

EU Strong

Seeing strong biases against the dollar on both sides is very telling. Regardless of ECB's decision to cut rates, a handful of factors point towards a bullish euro. The dollar seems to be more sensitive to sentiment driven factors such as CPI.

If we get signs of cooling inflation, the EU bulls will be happy. If inflation looks sticky or ticks higher, it will add to the rate cut uncertainty in September.

Retail Spotlight

Retail is majority long the dollar which is a sign that the dollar will be weaker. Indices are mixed with gold while oil is getting bought by the crowd.

Smart Money Spotlight

A Smart Money study suggests that both institutions and retail are pulling out of the euro. This is not a good sign for the EU pair which is currently a strong bullish bias on the EF.

Fundamental Spotlight

This CPI study shows us the trends in Europe and US over the past 3 years. Although both inflation rates could be experiencing sticky behavior, the US is struggling to dip under 3% inflation unlike Europe.

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