Morning briefing: The lower US CPI release led to Dollar weakness

The lower US CPI release led to Dollar weakness while most currencies have strengthened against the Dollar overnight but have managed to recover slightly. Now it must be seen if the impact of lower CPI will continue to keep the Dollar lower over the coming days and continue strength in currencies or if they will recover to previous levels seen earlier this week. Euro tested 1.09 before coming off while USDCNY recovered within the 7.26-7.28 range after a decline to 7.2496. The possible intervention from BOJ led USDJPY and EURJPY to fall significantly. If USDJPY and EURJPY face downside pressure, it will be difficult for the Dollar Index to strengthen considerably from current levels. Aussie & Pound on the other hand tested 0.6798 and 1.2949 before cooling down. EURINR observed a high of 91 but could not sustain it and has declined a bit. The rupee has scope to open stronger today but can eventually recover by the end of the session.

The US Treasury yields have come down after the inflation data release yesterday. The US Headline CPI came in at 2.98% (YoY) for June, down from 3.25% seen in May. The Core CPI was at 3.28% (June), down from 3.41% (May). The Treasury yields are coming closer to their support. Failure to bounce thereafter can trigger an extended fall. The German yields have declined sharply. But supports are there to limit the downside and keep the broader uptrend intact. The 10Yr and 5Yr GoI have bounced slightly. But the upside is likely to be capped and they can see a fall in the near-term.

Dow Jones and Shanghai have inched up further and look bullish to target 40000-40200 and 3000 in the near term. DAX has risen towards its upper end of the range whereas Nifty is oscillating within its 24000-24450 range. Bias is positive for both DAX and Nifty to see an eventual break on the upside of the range. Nikkei has fallen further but has near-term support, which if holds, can produce a bounce back toward its crucial resistance.

Crude prices have to rise past their immediate resistance to open doors for a rise toward their next key resistance. Gold and Silver saw a sharp rise yesterday after the release of lower-than-expected US CPI data. Both Gold and Silver look bullish for the near term. Copper, on the other hand, has fallen below 4.50 but the downside could be limited to 4.4. Natural gas continues to drift lower and has scope to target 2.1-2.0 on the downside.

Visit KSHITIJ official site to download the full analysis