Inflation Data in Focus This Week

Last week ended positively for the US stock market, with equity indices rising notably, mainly due to oversold conditions and a decline in US yields.

This week, investors will be following the three-day European Central Bank (ECB) symposium, which begins on Monday in Portugal, to look for hints on how the central bank sees the trade-off between containing inflation and attempting to guarantee a smooth landing for the global economy.

Traders will also be watching for other news from the Group of Seven leaders’ three-day meeting, which started on Sunday. The agenda is expected to be dominated by the situation in Ukraine and the prospects for the global economy.

US and EU inflation

On Thursday, the Personal Consumption Expenditures (PCE) price index will be released, giving the most recent indication of inflation in the United States. According to projections, PCE prices increased by 0.9% in May, a substantial increase from the 0.2% month-over-month in April. 

The annual gauge is expected to grow by 6.7%, when it was 6.3% in April. This exceeds March high of 6.6% and it hits a new 40-year high, that we haven’t seen since early 1982.

On Friday, reports are expected and inflation in the eurozone is anticipated to have reached an all-time high of 8.3% in June, the highest level recorded since the single currency was introduced in 1999. If inflation in the eurozone continues considerably over the bank’s long-term objective of 2%, the ECB is likely to raise interest rates in July for the first time since 2011.

Moreover, during the US session, investors will pay attention to the US manufacturing ISM for June, projected to decline slightly to 55 from 56.1 in July. The prices paid subindex should also decrease slightly. 

Due to persistent supply chain bottlenecks, a lack of qualified workers, and rising inflation that have harmed companies that produce goods, businesses’ mood has significantly deteriorated recently.

Setups for This Week:

Nasdaq

Primary View:

Nasdaq starts a new week with a rise, which is a continuation of the movement from the last week.

The price managed to climb back above the 50% Fibonacci, which creates a false breakout.

Nasdaq is climbing above the upper line of the wedge, which in theory brings us a mid-term buy signal.

Alternative View:

The price dropping back inside of the wedge will trigger a sell signal again.

GBPUSD

Primary View:

Cable still has a chance for the double bottom formation.

We have all the necessary divergences and the only thing missing is the breakout of the neckline of the double bottom formation

For a proper, mid-term buy signal, it would also be nice to see a breakout of the horizontal resistance at 1.265 (yellow).

As long as the price stays below those two, the sentiment will remain negative.

Alternative View:

A breakout of the green support and making new, long-term lows, will bring us a strong signal to sell.

USDCAD

Primary View:

The USDCAD met a crucial, long-term horizontal resistance on the 38,2% Fibonacci.

The price created a head and shoulders pattern (orange).

The end of the last week, brought us a breakout of the neckline and in consequence a great sell signal.

Today, traders are following this sentiment. The target is the 23,6% Fibonacci.

Alternative View:

The price climbing back above the neckline, will cancel the sell signal.