Month over month CPI in July registered 0%, while YOY was below forecast at 8.5%. The USD fell as the Fed fund futures moved to a 50/50 chance of a 50-bps rate hike, versus 75bps. The cool-down in inflation was felt at the gas pump, as oil prices remain near $90/bbl. Month over month CPI in Germany jumped to 0.9% while their YOY print was 7.5% (forecast was 7.6%). U.S. PPI was 7.6% YOY as predicted. Euro-zone industrial production jumped 2.4% compared to 12 months earlier. The results of this data showed a weaker USD against most currencies. The question that needs to be answered is, has the dollar topped? Will inflation continue to cool, taking some pressure off Central Banks. Most Fed watchers do expect more rate hikes even after September’s. These may be 50 bps or even 25 bps. The U.S. jobs data continues to be positive. Which is a welcome relief to an economy that had showed two quarters of negative GDP growth.  

The upcoming week will have U.S. housing data, which has been closely watched as a gauge to how higher interest rates are impacting a key part of the economy. Retail sales will be released as well, but there is less interest in this number as it has become volatile. Credit card debt is increasing, which may have a negative impact in the medium to long-term.  

The dollar index begins the week at 105.67. The highest in the last several weeks was 109.30. An argument can be made that it can fall further to 102.00 and not change the up-trend. The struggle now is “the dollar’s strength or currency (Euro, Gbp, etc.) weakness”. A concept that has always been confusing. During this current period of time, the market is all about the dollar. The Fed, inflation and recession in the world’s biggest economy is more important than the Euro Zone, China, Japan, etc. Is the Euro weak? Yes, compared to a year ago, but does that impact the European economy? A strong dollar equates to cheaper goods and services for Europe. Just as it means that the U.S. multinationals receive less USDs for each FX product sold. But, for U.S. companies buying product overseas, it is a huge cost savings, like European companies selling their product to the U.S. see smaller margins. There is no question that the pendulum swings. Rarely is it in the middle where every country can maximize revenue, while minimizing expenses.  

EUR (1.0260): The single-currency jumped to 1.0355 from 1.0200 after last week’s CPI. After a second failed attempt to rally above 1.0355, the sellers took over and the Euro moved to 1.0240, where we begin this week. Resistance is at 1.0280 and then back at last week’s 1.0355. Support on the hourly chart is at 1.0195 and 1.0100. There is a series of euro economic data this week. PPI, retail sales and manufacturing numbers. Each is important in its own way but the real struggle for the Euro is Russia / Ukraine and the cost of oil. Right now, as oil prices trade at $90/bbl, does take some stress off the inflation problem. There is concern over the colder months and the availability of heating fuel for the continent. Keep this in mind as the Euro trades in its current range.  

GBP (1.2130): The sterling continues to trade in a lethargic pattern. Last week’s rally fell apart at the 1.2280 level, and the currency slowly fell back to 1.2090. It is confusing that the BOE hiked rates 50 bps, U.S. inflation settled down and the pound cannot sustain a meaningful rally. When good news cannot rally a currency, then any type of negative news can weaken it. Resistance is at 1.2180 while the support at 1.2090, 1.2060 and 1.2000 will be difficult to grind through.  

JPY (133.30): The yen has settled down after the last two weeks of bouncing wildly. The 135.50 area has capped the recent dollar rally and the low of 131.75 has proven difficult for the dollar to fall through. The larger range is 130.00 to 140.00 and with the currency pair trading at 133.30, there doesn’t seem to be a reason for it to move outside the large range. Most likely, the movement in U.S. yields will dictate the movement this week. I would suggest that selling dollar rallies may be the right way to trade USD/JPY.  

CAD (1.2780): Oil prices are under pressure, yet the Canadian dollar is gaining strength. That does not make our view of oil and Cananda moving together very strong. The Canadian economic data this week include housing starts, CPI and retail sales. Together these will be instrumental in the Bank of Canadas next interest rate decision. While the Fed is at a crossroads with “higher, faster” rate decisions, the BoC remains poised to continue with larger rate hikes. This is keeping the Canadian dollar strong and until the next announcement, remain long the Loonie.  

MXN (19.8500): The peso rallied throughout the week and is back at a level where the support of 19.5000 comes into play. Banxico has been hiking rates and at a quick pace, widening the spread between the peso and dollar rates. Another benefit of a U.S. recovery, lower inflation and lower energy prices, is a stronger Mexican economy.  

CNY (6.7600): The currency pair remains steady. Last week’s Taiwan visit by Nancy Pelosi did create tensions and a week of Chinese military exercises but that has not impacted the currency. The PBOC is keeping a tight rope on the currency, maintaining it where it is to avoid a large, volatile move. The range of 6.8400 and 6.6500 should continue to hold the pair.