US Session Forex Brief, June 12 - Headline Inflation Cools in US but Core CPI Remains Stable - FX Leaders

The main event in financial markets today was the release of the US inflation report. The US economy has turned soft in recent months as the economic data has shown in the last couple of months. The US economy has been holding up well as the rest of the globe’s economies weakened considerably in 2018 and this year, hence the many rate hikes from the FED during this time. But eventually, the global weakness caught up with the US as well and now the US economy doesn’t look so upbeat either. After many really weak data releases recently, the inflation report held increased importance today.

Headline YoY CPI (consumer price index) was expected to cool off and it did so, falling to 1.9% from 2.1% previously, but core inflation remained unchanged. The miss in headline inflation sent the Buck lower for a moment, but the earnings ticked higher, which improved the sentiment and the USD is climbing now.

Crude Oil has also taken a hit today, and it is trading nearly 3% lower as inventories keep building up and the global demand keeps dampening, with the global economy in slowdown. OPEC will likely decide to extend production cuts, but I don’t think that will be enough to turn Crude Oil bullish for more than a few sessions. The sentiment turned pretty negative in the Asian session due to protests in Hong Kong, which I don’t really know what they’re about, but that sent USD/JPY on another bearish leg.

European Session

ECB Speaking This Morning – The ECB president Mario Draghi commented in Frankfurt today that global trade has faced headwinds in recent years. He didn’t really touch on anything notable in particular though, besides the headline comment on trade. The ECB governing council member, Madis Muller also commented after Draghi that there’s still some room to go to reach inflation target. Really? Inflation has been weakening in Europe, forget about the target of 2%.
BoJo is Not Aiming at No Brexit Deal Outcome – This was the headline comment from the main candidate to take May’s post in the UK, Boris Johnson as he began the campaign officially today. He continued: I don’t think we will get a no-deal Brexit, but it is only responsible to prepare for such an outcome. UK must leave the EU on 31 October. The government must deliver on the Brexit vote. Must do better than the current Brexit deal
Wilbur Ross Commenting on Trade and the FED – The US commerce secretary, Wilbur Ross, commented on the trade war and the FED earlier today, that Trump and Xi may decide to reopen talks. The G20 isn’t the forum for Trump and Xi to sign a final trade deal. Trump wants structural reforms in trade deal with China. The Fed should reconsider last rate hike, which was at best premature. What’s the worst, intentional to hurt the US economy?

US Session

US Headline CPI Inflation – The CPI inflation report from the US was released a while ago. Headline CPI was expected to decline to just 0.1%, while core CPI was expected to tick higher to 0.2% in May from 0.1% in April. Headline CPI inflation for May came as expected at 0.1%, down from 0.3% in April. YoY headline CPI inflation moved lower to 1.8% in May from 2.0% in April, missing expectations of 1.9%, which sent the USD tumbling for a moment.
US Core CPI Inflation – Core CPI also came at 0.1% for May, missing expectations of 0.2%. Analysts have been waiting for months for Core CPI to tick higher to 0.2%, but it has missed expectations during the last four months, so core inflation is not going anywhere anytime soon in the US. Although, core YoY CPI remained unchanged at 2.1% as previously. Average hourly earnings ticked higher though to +1.3% against +1.2% prior. Average weekly earnings also ticked higher to +1.0% from +0.9% previously.
US Crude Oil Inventories – The Crude Oil inventories have been showing a decent pace of build up in the US of around 5 million barrels per week on average in recent weeks. We saw a small decline of 0.3 million barrels in the last week of May, but inventories increased again last week by 6.8 million barrels, against a 1.7 million barrels decline expected. Today, inventories are expected to show a decline of 1.0%, but don’t be surprised to see another increase which would hurt WTI crude Oil further.

The trend has been bearish this month
The pullback higher is complete on the H1 chart
The 100 SMA is providing resistance

The price has been hanging around the 50 SMA

USD/CAD has turned bearish in the last two weeks. Last week the CAD was helped by the jump in Crude Oil from the support at $50, while this week it’s just the continuing USD weakness and some newfound strength in the CAD. Fundamentals from the US are not helping matters much and the trend continues to remain bearish. We saw a retrace higher in the last two sessions, but the retrace is complete now as stochastic shows, while the 100 SMA (green) is providing resistance at the top. The price has started to turn bearish again, but the sellers have to break the 50 SMA (yellow).

In Conclusion

Markets were waiting for the inflation report from the US today to give us some indication where it will head, but it didn’t offer much since the core CPI (consumer price index) remained unchanged. Headline inflation cooled off but average hourly and weekly earnings ticked higher, so it was a neutral report overall. Now the attention will shift to the retail sales report on Friday.

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