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Asset Watch
Thursday, August 10, 2023
Today’s release of the US Consumer Price Index data for July indicated an increase, albeit slightly below market expectations (actual 3.2% vs expected3.3%). The monthly CPI reading, as projected, stood at 0.2% and this was welcomed as it marked the lowest monthly increase in two years and a half. The Core inflation levels, excluding energy and food components, decreased from 4.8% in June to 4.7% in July.
The elevation of the headline CPI rate from 3% to 3.2% can be attributed to several factors, notably the surge in energy prices. The cost of West Texas oil escalated by approximately 14% throughout July. Furthermore, the resilience of the US labor market, propelled by the services sector and stable hourly wage levels, played an important role. Despite these factors, there are indications that inflation could potentially trend downward in the medium term. This stems from the rise in US interest rates, which could adversely affect borrowing and spending by both individuals and businesses. This is especially significant given that consumer spending constitutes two-thirds of the American economy’s performance. Additionally, the forthcoming requirement for individuals to resume paying university loan installments during the last quarter of the year might impact their spending capacity.
The market reacted with relief to the news of inflation levels coming in below expectations. This heightens the likelihood that the Federal Reserve might halt its upward adjustments of interest rates during its September meeting. However, the ultimate decision hinges on forthcoming data pertaining to US employment levels and inflation rates for the month of August.
Chart source ADSS Platform
The EUR/USD price tested on multiple occasions the 50-day simple moving average but failed to close below signaling that the bearish momentum was losing steam. Today, the price broke above the downward trendline originating from the July 18 high located at 1.1276 hence, any close above this line is considered as an upward correction.
Currently, the price moves in the trading zone between 1.1060 – 1.0873 and a daily close above the high end of the zone could send the price even higher towards 1.1176 . That said, the resistance level located at 1.1110 should be kept in focus. On the other hand, a daily close below the low end of the zone could send the price even lower towards 1.0730 however, the support level at 1.0831 should be considered.
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