- The US dollar is strengthening across the board on a stronger than expected CPI data.
- The euro is losing ground against the yen, sending the EURJPY pair lower.
- Gold traders continue to shrug off dollar strength sending the XAUUSD pair higher.
- The bid tone in the equity markets is fading amid growing concerns of FED tightening monetary policy.
USDCAD turned bullish, powering through the 1.2500 psychological level in the aftermath of a stronger than expected US inflation data. A bounce back in oil price could do little to curtail dollar strength against the Canadian dollar.
The bullish momentum on the USDCAD could see the pair powering back to two-month highs of 1.2580, a critical resistance level.
On the flip side, the pair will have to pull back below the 1.2500 for bears to have any chance of fuelling another leg lower.
As it stands, bulls remain under control as stronger than expected consumer price index data in the US continues to fuel talk about monetary policy tightening. Data published by the US Bureau of Labor Statistics indicates that the Consumer Price Index for June jumped to 5.4%, beating market expectations of 4.9%.
The Core CPI that strips volatile energy and food prices also jumped to 4.5% compared to analysts’ estimates of 4%. The data is having a positive impact on the greenback, with the US dollar index powering to highs of 92.62 level. Consequently, USDCAD looks set to continue edging higher as the dollar continues to outperform its rivals.
With the US dollar strengthening against the majority of currencies, the euro remains under pressure, weakening across the board. EURJPY has since turned bearish, resuming its slide. Amid the euro weakness and yen resilience, the EURJPY pair look set to make a run for the 130.00 psychological level.
Failure to rally and find support above the 131.00 has affirmed chatter of bears in control and likely to continue pushing the cross lower. The Japanese yen continues to hold firm against the majors as a safe haven.
A spike in COVID-19 cases around the world compounding economic recovery concerns has all but continued to fuel demand for safe-haven assets, of which the yen is one of them.
Gold holding firm
In the commodities market, gold is yet again under pressure amid renewed dollar strength. After tanking below the $1800 level, in the aftermath of the strong US CPI data for June, the precious metal did bounce back. Gold rallied to $1812 as traders continued to shrug off dollar strength.
XAUUSD continues to trade in a tight trading range between $1798 and $1813.
Gold sentiments have taken a significant hit in recent months owing to growing fears that the FED will start tightening monetary policy to counter rising inflation. The prospects of the FED hiking interest rates sooner than later and cutting back on bond buybacks have continued to work in favor of the dollar, sending the precious metal lower.
US equities under pressure
Major US indices struggle to hold on to gains at all-time highs in the stock market following the CPI shock. The stronger than expected data has only gone to fuel suggestions that the FED will start tightening monetary policy that has been the catalyst behind the rally to record highs in the aftermath of the COVID-19 pandemic.
The St Louis Fed President James Bullard said it is high time the FED started reducing asset purchases continues to weigh heavily on investors’ sentiments in the equity markets. Amid the concerns, the Dow Jones Industrial Average, tech-heavy NASDAQ, and the S&P 500 continue to trade at all-time highs.
The outcome of the second-quarter earnings will significantly impact investor sentiments, likely to influence the indices’ direction of trade amid the inflationary pressure.
Ethereum edges lower
In the cryptocurrency market, Ethereum turned bearish after breaching the $2,000 support level in the aftermath of the dollar strengthening. The second-largest cryptocurrency by market cap has been under pressure after hitting strong resistance near the $2,400 level.
ETHUSD faces strong support near the $1880 level, a breach of which would accelerate a sell-off to the $1698 level, which happens to be the pair’s four months lows. The RSI indicator tanking below the 50 level on the weekly chart all but affirms the momentum is to the downside.