All Eyes on US Inflation This Week

According to data released by the Bureau of Labor Statistics last Friday, nonfarm payrolls increased by 528,000 in July, considerably above the market consensus of 250,000. As a result, the likelihood of a 75 base point Fed rate rise in September is currently 68.5%, up from 29% a week ago, per the CME Group FedWatch Tool.

This week will belong mostly to the US inflation figures, but volatility could also hit the markets after Thursday’s UK economic numbers.

July’s inflation updates

The July Consumer Price Index (CPI), which the Bureau of Labor Statistics (BLS) will issue on Wednesday, will offer a critical update on whether prices have continued to grow after the annual rate of consumer inflation reached a 40-year high of 9.1% in June. Prices are predicted to have increased by 0.2% in July, down from June’s 1.3% advance, the largest monthly increase since 2005. Inflation is also anticipated to slow annually, likely reaching 8.7%.

It is anticipated that the core inflation rate, which excludes the volatile price categories of food and energy, would increase slightly to 6.1%, largely as a result of increased food costs. Lower headline inflation rates will likely be a result of the recent decline in gasoline and other energy product prices from their mid-June high levels.

The Producer Price Index (PPI), which measures inflation from the perspectives of manufacturers and retailers, will also be updated by the BLS on Thursday. In June, producer prices increased by 1.1%, picking up speed to reach an annual pace of 11.3%. The annual PPI inflation rate is anticipated to increase even further, reaching 11.4% in July, just shy of the current high of 11.5% set in March.

On Thursday, investors will pay attention to the British GDP numbers for the second quarter. The economic activity is projected to decline notably, likely printing -0.2% quarterly in Q2, down from 0.8% previously. The monthly change is seen falling from 0.5% to -1.3%. The Bank of England has recently warned the UK economy will enter a recession soon, probably lasting the whole year of 2023.

Consumers remain pessimistic

The preliminary August reading of the Consumer Sentiment Index from the University of Michigan will be released on Friday, providing market players with a vital update on consumer confidence.  The index is expected to increase from the 51.5 value that was reported in late July to 52.2. The measure of consumer sentiment hit a record low of 50 in June before modestly improving last month. The consumer mood has fallen sharply this far in 2022 as a result of rising prices, diminishing purchasing power, a worsening economic outlook, and the possibility of a recession.

Setups for This Week:

WTI Oil

Primary View:

Last week, oil dropped to pre-invasion levels and is trading below 90 USD/bbl

The price managed to break the long-term up trendline (black)

The target is on the 38,2% Fibonacci

Alternative View:

If the price climbs back above the black line and the 23,6% Fibo – the sell signal will be cancelled

USDCAD

Primary View:

USDCAD is bouncing off the 1.295 resistance again

This time, it’s happening within the head and shoulders formation. Currently the price is creating the right shoulder

A sell signal will be triggered should the price break the neckline of this formation (red)

Alternative View:

If the price closes a day above the 1.295, the sell signal will be cancelled

EURCAD

Primary View:

EURCAD starts the new week with a bounce from a very important dynamic resistance (black)

Here, for the past four weeks, we’ve been inside a sideways trend, waiting for a breakout.

The price climbing back above the black line will give us a buy signal and price breaking the lower yellow support will give us a signal to sell