■ The Dollar Index (DXY) has dip to its lowest in the month and is testing the lower boundary of the range between 104-106 pts after cooling CPI data.
■ Despite a strong reversal, the DXY is likely to be supported at 103.86-104.10 and this is in place with our last week’s view.
■ EURUSD is the next in line to benefit from the rate cut prospect from the Federal Reserve. Especially after the EURUSD pair sustain a closure above 1.0900 psychological level.
■ Both the AUDUSD and GBPUSD have successfully sustained their bullish outlook as expected.
■ USDJPY fell on strong possibility of Intervention but was denied by the Ministry of Finance. If intervention is true, the prospect of Bank of Japan hiking their interest rate is likely to be low.
Dollar Index falls after possible rate cut due to cooling CPI data
The June consumer price inflation report is unexpectedly low, which should help bolster the confidence of individual FOMC members that inflation is on track to meet the Federal Reserve’s 2% target. Instead of the anticipated 0.1% increase, the headline CPI fell by 0.1% month-on-month, while the core CPI rose by 0.1% MoM, slightly below the 0.2% consensus forecast. In a separate development, initial jobless claims decreased by 17,000 to 222,000, and continuing claims remained steady. However, the market is primarily reacting to the lower CPI figure, causing the 10-year Treasury yield to drop below 4.20% for the first time since late March. However, PPI saw a strong increase to 2.6% in June VS 2.3% expected. The increase in PPI may cause the inflationary pressure to be back going forward as increased manufacturing cost may be flowed to the consumer. Though rate cut prospect has increased since PCE numbers and CPI data goes hand in hand, we still reiterate the possibility of a no rate cut in September.
Dollar Index Technical outlook
We continue to maintain our view of a strong dollar over the longer period despite a failure to cross above the 106.00 resistance level. Near-term outlooks suggest that the bearish pressure will likely see further correction down toward our key support at 103.86-104.10 and is on course with our last week report dated 8th July. Should the rebound come in strong, then the dollar is likely to resume its upside and target 106.80 in the mid-term. Breaking below 103.00 for two consecutive periods will signal a complete bearish reversal.
EURUSD eyeing potential continuous upside above 1.0900 in the short-term
The EURUSD has seen strong bullish pressure especially after it broke and closed above the key psychological support above 1.0900. Ichimoku shows a bullish signal after the EURUSD crosses above all ichimoku indicators. While Kumo is thin, it does not affect the short-term bullish outlook as long-term MACD saw a return of positive histogram. Both mid-term Stochastic oscillators and short-term ROC have confirmed its bullish momentum. The 16-period Directional movement index saw strong bullish strength after DM+ has risen strongly.
Both AUDUSD and GBPUSD has reached our expected target
AUDUSD has confirmed the upside after an expected break above the resistance at 0.6670 and reached our target at 0.6784 based on our previous report dated 1 Jul 24. It is likely to test higher target level at 0.6800. Key support remains at 0.6500 should there be any correction.
GBPUSD has also reached our target of 1.2988 earlier than expected and the strong bullish momentum is inching closer to our next psychological target at 1.3000. Key support is at 1.2515 and 1.2400. Major support is at 1.227.
Figure 1: Dollar Index (DXY) – Bearish corrective pressure likely to halt at 103.860 support
Sources: Tradingview, CGSI RESEARCH, ICE
Figure 2: EURUSD – Weakening resistance at 1.2813 suggest a further break to the upside
Sources: Tradingview, CGSI RESEARCH, ICE
Figure 3: Consumer Price Index (CPI) – Continuous dip!
Sources: CGSI RESEARCH, CEIC
Figure 4: Producer Price Index (PPI) – Increased PPI! At odds with CPI
Sources: CGSI RESEARCH, CEIC
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