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Abstract: Both overall inflation and core inflation in the U.S. in June were lower than market expectations, triggering a new round of USD selling. The EURUSD accumulated bullish momentum and rose to the strongest resistance level since early May before the New York session, exceeding 1.1100.

Fundamentals

According to data released by the U.S. Department of Labor on Wednesday, The CPI rose by 3% in June compared with the same period last year. After the seasonal adjustment in June, the monthly CPI rate rose by 0.2%. After deducting food and energy, the monthly rate of core CPI rose by 0.2% in June. The annual rate of core CPI, which was not seasonally adjusted in June, is also a better indicator of potential inflation, rising by 4.8%, which is the lowest level since the end of 2021.

Overall personal consumption expenditure (excluding food and energy) has dropped sharply from the peak level, which is consistent with some other indicators in PPI and ISM service price sub-indices, which do show a slowdown in inflation. However, strong consumer spending on services such as air tickets has eased efforts to curb price increases.

The interesting thing about the monthly inflation rate in June is that it approaches 0.2% upwards, not 0.2% downwards, so this is definitely a weaker figure than expected. Whether it is about new cars or used cars, the price of cars is slowing down. When this happens, you may start to see some core data that may even be lower than 0.2%.

The inflation rate in the U.S. dropped to the lowest level in more than two years in June, which indicates that the Fed has achieved greater success in curbing price pressure, but it is still far above the Fed's target because inflation is expected to remain sticky. This means that the Fed's mission has not been completed, but it is undoubtedly moving in the right direction.

After the U.S. inflation report was released in June, the Fed swap transaction showed that it was almost certain that the Fed would raise interest rates by 25 basis points this month. However, the forecast of the peak interest rate of the federal funds in this cycle was lowered to slightly below 5.4%, which means that the market now thinks that the possibility of the Fed raising interest rates again after the expected interest rate increase this month is much lower than 50%.

Falling inflation may boost investors' optimism, but we still need to pay close attention to the pace of inflation changes. Although the inflation rate is gradually decreasing, it is still far above the Fed's target of 2%.

Technical Analysis

The EURUSD regained upside momentum after the release of the U.S. June inflation report. It has now climbed to a new 2023 high above 1.1100. This indicates increasing pressure from buying. Further gains are expected to follow.

Technically speaking, MACD confirms this situation. Its signal line has stabilized above the zero level and the histogram has grown for 14 periods. If the rise continues, then the 1.1120 - 1.1185 range is the next upside target.

Overall, the market has now broken out to new 2023 highs, and the bulls are expected to test the previous sell-off level near 1.2000 after a slight adjustment. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1.1000

Target price: 1.2000

Stop loss: 1.0970

Deadline: 2023-07-26 23:55:00

Support: 1.1052, 1.1014, 1.0978

Resistance: 1.1120, 1.1185, 1.2000