US PPI Cools, USD Slips Below 100 - CPT Markets

Market Wrap-up: US PPI Cools as Fed Rate Hike Bets Fade

US producer price inflation continued to cool, following the latest CPI data, reinforcing expectations that the Fed has less need to tighten policy further. The softer inflation and labour-market data weighed on the US dollar, pushing the DXY below 100.00.

US PPI was unchanged month-on-month in July, below the 0.2% increase expected, according to data released on August 13. On an annual basis, PPI fell sharply to 4.7% from 5.5% in June, also below the 4.9% forecast.

Core PPI rose 0.2% month-on-month, below the 0.3% forecast and down from 0.4% in the previous month. On an annual basis, core PPI eased to 4.2% from 4.7%, in line with expectations. The data provided further evidence that underlying inflationary pressure is gradually moderating.

Meanwhile, initial jobless claims for the week ending August 8 rose to 209,000, above the 202,000 estimate and the previous week's 200,000. Continuing claims fell by 22,000 to 1.777 million for the week ending August 1.

Following the data, markets now price a 34% probability of a Fed rate hike at the September meeting, down from 40% previously.

Despite softer Fed tightening expectations and a weaker US dollar, gold fell around 1% to $4,360/oz during the session. The decline was mainly driven by profit-taking after the precious metal rallied sharply from the $4,000 area since July 17.

Energy markets also came under pressure, with US WTI crude falling 2.4% to $81.25 per barrel. Brent crude, the international benchmark, declined around 2% to settle at $87.07 per barrel.

US Energy Secretary Chris Wright said oil exports through the Strait of Hormuz were significantly higher than several independent market estimates. According to Wright, oil flows through Hormuz averaged nearly 9 million barrels per day over seven days. Including volumes transported through pipelines, total oil exports from the Persian Gulf region reached around 15 million barrels per day.

Looking ahead for today, markets will focus on July US retail sales, while the University of Michigan's preliminary Consumer Sentiment and Inflation Expectations surveys will also be closely monitored.

XAU/USD: Gold Slides as Profit-Taking Takes Hold

Key takeaway:

• Gold fell nearly 1% on August 13 as investors took profit after the precious metal climbed to its highest level in more than two months following US inflation data that came broadly in line with expectations.
• Analysts view $4,500 as a major resistance level for gold. The price has tested this level twice before experiencing sharp declines.
• However, on Wednesday, Cleveland Fed President Beth Hammack continued to stress the need for a rate hike at this stage, keeping some upside pressure on yields and limiting the bullish case for gold.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,222
• Resistance: 4,356

Oil: WTI Falls as Hormuz Oil Flows Exceed Estimates

Key takeaway:

• Oil prices declined on August 13 after US Energy Secretary Chris Wright said oil exports through the Strait of Hormuz were significantly higher than several independent market estimates.
• According to Wright, oil exports through Hormuz averaged nearly 9 million barrels per day, while TD Securities estimated flows through the strait at only around 5 million barrels per day.
• Meanwhile, global oil demand is expected to decline by 1.6 million barrels per day this year, around 510,000 barrels per day more than the previous forecast, according to the International Energy Agency (IEA).

Technical Outlook:

• Daily Bias: Bearish
• Support: 77.76
• Resistance: 83.30

DXY: USD Weakens Below 100 on Softer US PPI

Key takeaway:

• The US Dollar Index (DXY) fell below 100.00 after softer-than-expected PPI and higher-than-expected weekly jobless claims reduced expectations for further Fed tightening.
• However, hawkish remarks from Cleveland Fed President Beth Hammack, who reiterated her call for a rate hike, could help limit further USD weakness ahead of today's July retail sales data and the University of Michigan's Consumer Sentiment and Inflation Expectations surveys.

Technical Outlook:

• Daily Bias: Bearish with Rebound Potential
• Support: 99.80
• Resistance: 100.00

EUR/USD: Euro Holds Gains on Weaker USD

Key takeaway:

• The euro remained supported after rebounding overnight from a more than one-week low as the US dollar weakened.
• The common currency also benefited from growing acceptance that the European Central Bank (ECB) could deliver one final 25 basis point rate hike at its September meeting, as inflation remains above the 2% target.

Technical Outlook:

• Daily Bias: Bullish
• Support: 1.15252
• Resistance: 1.15600

USD/JPY: Yen Strengthens as Fed Tightening Bets Fade

Key takeaway:

• The Japanese yen strengthened as softer than expected US PPI reduced expectations for further Fed tightening.
• In addition, the Bank of Japan (BoJ) is increasingly expected to raise rates in September or October.
• Analysts see growing support for further rate hikes from two factors: the central bank's concern that a weaker yen is adding to price pressures, and the government's desire to reinforce the impact of the recent US-Japan currency intervention.

Technical Outlook:

• Daily Bias: Bullish
• Support: 159.00
• Resistance: 159.52

Markets are currently being driven by a softer US inflation and labour market signal, which has reduced expectations for further Fed tightening and pushed the USD below 100.00. That repricing has supported EUR/USD and the Japanese yen, while gold has failed to extend its upside as profit-taking takes over after the recent rally.

Oil remains a separate source of pressure. Higher than expected Hormuz export flows have eased concerns around supply disruption, while weaker global demand expectations add to the bearish backdrop for crude.

The combination of softer inflation data, weaker oil prices and a less hawkish Fed outlook is keeping the USD under pressure, although hawkish Fed commentary leaves room for a rebound.

For now, markets are waiting for July US retail sales and the University of Michigan's Consumer Sentiment and Inflation Expectations data for further clues on the US growth and inflation outlook. The next round of data will help determine whether the recent shift away from Fed tightening expectations can extend.

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