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Fan Yang

Soft US Inflation Data Disappoints Dollar-Bulls

During the 8/11 session, the Bureau of Labor Statistics released inflation data for the US for the month of July. Here's the official synopsis from the report:

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.7 percent.
The indexes for shelter, medical care, and food all rose in July, leading to the seasonally adjusted increase in the all items index. The energy index declined slightly in July, with its major component indexes mixed. The index for natural gas declined, while the electricity index rose and the gasoline index was unchanged. The food index increased 0.2 percent, with the indexes for food at home and food away from home both rising. 
The index for all items less food and energy rose 0.1 percent, the fourth month in a row it increased by that amount. The indexes for shelter, medical care, recreation, apparel, motor vehicle insurance, and airline fares all rose in July. These increases more than offset declines in the indexes for new vehicles, communication, used cars and trucks, and household furnishings and operations.    
The all items index rose 1.7 percent for the 12 months ending July, a slightly larger increase than for the 12 months ending June. The index for all items less food and energy also rose 1.7 percent for the 12 month period, the same increase as for the 12 months ending May and June. The energy index rose 3.4 percent over the last year, while the food index increased 1.1 percent.

The market was expecting a 0.2% increase in both the headline and core reading for the month of July. Both being 0.1%, the inflation data was softer than forecast. What that means for the market essentially is that the prospect of 2 more rate hikes in 2018 just decreased, although they are still pretty good.

Still, the inflation data disappointed and the market sold the USD across the board.

US Dollar Index (DXY) 4H Chart

(click to enlarge)

Bearish Continuation:

- As we can see on the dollar index 4H chart, the greenback has been sold across the board.
- We did see some consolidation in August, but after the 8/11 session, it looks like bears are back in charge. 
- At the very least, there is no signs of a sustainable bullish recovery yet. 
- I think the inflation reaction established an important resistance pivot at 93.50. If price can avoid the July/August lows and return above 93.50, then I would anticipate a short to medium-term recovery in the USD at least to take back some of July's losses.