Headlines

* GBP rises to 15-month high against the dollar above 1.30 as US CPI slows  

* Fed set to raise rates in July despite inflation slowdown

* Bank of Canada hikes rates, says prepared to raise them further

* Gold nears one-month high on hopes Fed nearing end of tightening

FX: USD fell sharply down over 1% after the cooler US CPI data. The DXY hit 15-month lows and below the February previous year-to-date low at 100.82 which becomes resistance. The 2-year yield dropped over 12 pips to 4.75%. Softer inflation means potentially no more rate hikes after July. Market bets have risen near to 70% from 54% that rates remain at 5.25-5.5% after the 25bp rise in a couple of weeks’ time. The 10-year yield is trading below 3.9% now and nearing support around 3.82%.

EUR/USD surged to a fresh year-to-date high, up 1.1% on the day. It has posted a new high this morning at 1.1148. The 200-week SMA sits above at 1.1181. GBP has bust through its 200-week SMA at 1.2887. Cable is trading above 1.30 today. This would be its sixth straight day of gains. This was last seen in October 2022 after the mini-budget crisis spike low. USD/JPY enjoyed its fifth consecutive down day falling by 1.33%. It dropped close to 138 earlier this morning. AUD rocketed over 1.5%. It is up again today above 0.68 which is the top of the recent range.  NZD is nearing levels last seen in April and May above 0.63. Prices then fell sharply. USD/CAD fell after the BoC’s “hawkish hike”. The June low at 1.3116 is key support.

Stocks: US equities gained after the soft CPI report. A falling dollar and Treasury yields spurred risk appetite. The benchmark S&P 500 closed up 0.74% to its highest level since April 2022. The tech-heavy Nasdaq outperformed surging 1.24% while the Dow rose 0.24%. Nine out of ten sectors gained and were led by communication services and utilities. Meta and Nvidia topped the megacap gains rising 3.7% and 3.5% respectively. The latter is back close to all-time highs.

Asian stocks traded higher on positive global risk sentiment. The Nikkei 225 reclaimed the 32k level. The Hang Seng outperformed due to strength in tech.

US equity futures are very modestly in the green. European equity futures are pointing to a slightly higher open (+0.1%). The Euro Stoxx 50 closed up 1.7% yesterday.

Gold enjoyed it best day since early May, rising over 1.3%. The plunging dollar and treasury yields are obviously helping. The 100-day SMA at $1952 and 50-day SMA just above at $1955 may offer near-term resistance. The base around $1920 is good support as bugs look to $1982 and above if they can overcome the SMAs.

Data Breakdown – US CPI cools, only one more hike likely

It was very welcome news for the Fed as the latest US inflation data softened more than expected on virtually every measure. Crucially, the core monthly rate (0.158%) came in below the 0.2% that is needed over a prolonged period to bring the annual rate back down to the FOMC’s 2% target. The core ex housing print should also please policymakers. It slowed to 3.7% and sub 0.2% m/m.

Going forward, housing should fall as it comes with a lag and other indicators point to rapid declines. Used car prices are also set to drop. All this calls into question a second 25pb rate hike by the Fed after the July hike. There will now also be talk of rate cuts which policymakers will use in response to the possible threat of recession. The dollar is suffering and this may continue going forward. Bearish momentum is strong with a weekly close below 100.82 key for more downside.

Chart of the Day – USD/JPY collapses from 145

The yen has been on a tear in recent days as out-of-favour low-yielding currencies like JPY and CHF have made a strong comeback. Bond yield differentials have narrowed reversing the recent trend which had pushed USD/JPY to previous intervention levels around 145. Add in strong speculation that the BoJ may hike its cap on the 10-year JGB yield at the end of the month and USD/JPY has reversed dramatically. Huge speculative yen shorts have also buckled and run for cover.

This has all seen the major tumble over 4.5% from the recent top at 145.07 in matter of several days. The 200-day SMA is below at 137.11 and a major Fib level at 136.66. Resistance sits at the 50% level of the November decline at 139.58. Above here is the 50-day SMA at 140.06.