Overnight Headlines

*USD firmed across the board, ahead of today’s US CPI data

*US equities powered ahead to new all-time highs

*Q2 earnings season kicks off with US banks in focus

USD is bid and hovering near the three-month high of 92.84 touched last week. EUR fell and is trading near its mid-June lows while GBP was also lower as PM Johnson confirmed plans to remove nearly all remaining Covid-19 restrictions from next Monday, despite a surge of cases expected soon. Overnight, AUD and NZD are the strongest currencies supported by solid trade data out of China.

US equities hit fresh record highs ahead of the start of Q2 earnings season. Investors are eyeing inflation data and the congressional testimony by Fed Chair Powell Wednesday. Expectations for solid reports in company results are underpinning the stock rally. Asian shares are up this morning with European futures in the green.

Market Thoughts – Has US inflation peaked?

One of the main data points for the week gets released later today. US CPI numbers for June will tell us whether inflationary pressures are starting to abate. Consensus looks for a continued high headline print of 4.9%, but the monthly increase in core CPI is forecast to slow to 0.4% m/m from 0.7% m/m in May.

Many economists think inflation pressures will remain elevated for a longer period of time. They will settle at a higher level than before the crisis, but not spin out of control due to well-behaved expectations.

Price action in US Treasury yields is steady, pointing to not an overly strong report this afternoon. Optimism from Chair Powell in his testimony is expected and taper talk will be explored but is not an imminent change. This is all helping to give a mild bid to the dollar, so anything different changes the current landscape as we head deeper into the summer.

Chart of the Day – GBP/USD on the move

We also get tier one UK data out this week in the form of CPI tomorrow and jobs numbers Thursday. Many eyes are on the UK amid PM Johnson’s “virus gamble” which is sparking unease as infection cases grow.

GBP is the third best major this month, after the safe haven CHF and JPY, and cable is trying to break the downtrend from the start of June. We can see bullish divergence with the daily RSI tracking higher as new lows were formed.

Prices have broken trendline resistance and are now trading above a previous swing high. The 100-day SMA looms above at 1.3938 but another day of consolidation could see a bull flag forming. Much may depend on US inflation later today, with a strong report pushing the pair back towards 1.38.