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Greenback Plummets Following Lower July US CPI

FOREX
  • The USD index is seen 1.1% lower on Wednesday following the negative surprise for July US inflation data. The month-on-month headline unrounded was negative for the first time since May 2020 and the M/m core unrounded was the lowest since Sept 2021.
  • The kneejerk reaction was a significantly lower greenback across the board, however, the main beneficiary in the immediate aftermath was the Japanese Yen. USDJPY crashed 230 pips to 132.69 shortly after the release and despite a sharp pullback to 133.30, pressure on the pair extended over the next few hours all the way down to 132.03, comfortably below the lows registered prior to Friday’s jobs numbers.
  • In similar vein, EURUSD saw immediately strength and finally broke out of the 1.0100-1.0300 range it had been consolidating in for the past sixteen sessions. Key channel top resistance was briefly breached above 1.0352 coinciding with the horizontal breakdown area between 1.0341/50.
  • Unyielding support for US equity benchmarks continued to underpin the likes of AUD and NZD who look set to register gains of close to 2% as we approach the APAC crossover.
  • Worth noting there has been a decent bounce in the greenback in late trade as Fed rhetoric from both Evans and Kashkari hinted that today’s data should not alter their expected trajectories for rates. USDJPY relief rally was supported by US 10-yr yields rising back to pre-CPI announcement levels with the curve remaining steeper. The pair now roughly a full point off the day’s lows at 132.03.
  • Similar EURUSD selling sees the pair trade back to the 1.0300 mark, however, with major equities remaining close to the highs, there has been less of a pullback in antipodean FX and CAD that remain closer to their best levels of the day against the greenback.
  • Bank Holiday in Japan on Thursday with little data due throughout the APAC session. Less significant PPI and jobless claims highlight the US docket tomorrow.
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