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US CPI meets expectations; Gold near prior support region

Summary:

  • US CPI Y/Y: +2.9% vs 2.9% exp
  • ECB minutes contain few surprises 
  • Gold revisits long term support level from 1235-1245

The release this afternoon of the latest CPI data from the US was keenly anticipated but the immediate reaction in the markets has been fairly subdued. This is likely because the data itself was pretty much inline with expectations with the June CPI Y/Y coming in at 2.9% as expected and the M/M figure only slightly missing in falling to 0.1% from 0.2% previously. 

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 Both the headline and core CPI readings ticked slightly higher in Y/Y terms, as was widely expected. Source: XTB Macrobond

Stripping out the impact of food prices and energy to get a core reading and the picture is pretty similar with the Y/Y reading being 2.3% and the M/M 0.2% - both in line with expectations. Wages are an area where economists look closely for any signs of strong moves due to their close correlation with inflation, but there was little to suggest a pick up with the latest figures. Real average weekly earnings were +0.2% Y/Y vs +0.3% prior and real average hourly earnings flat at 0.0%.

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 The initial reaction to the data was fairly muted with the buck trading a little lower on balance for the day. Source: xStation

While the headline and core CPI figures are both above the 2% mandate, the lack of a pick-up in wages indicates there’s little to suggest that inflation is in danger of getting out of hand. At the same time as these releases the weekly initial jobless claims was also announced, with the unemployment metric falling to 214k from 231k previously - the lowest level since early May. 

Wednesday’s session saw a fairly decent climb for the US dollar with the buck rising after a higher PPI reading. The EURUSD fell back below the 1.17 level as an attempted rally on some hawkish ECB comments fizzled out. Earlier today we got the minutes from the last ECB meeting, but the release contained little by the way of market moving information. Selected comments are shown below:

  • Rate guidance strikes balance between precision and flexibility
  • Given uncertainty, prudent to leave end of QE conditional on incoming data
  • Open-ended character of interest rate guidance should be emphasised

The rise in the buck had a negative impact on Gold with the precious metal moving back down near a key prior support zone around 1235-1245. This region marked the swing low from December last year and was also respected when it was tested last week and could be a key level to watch going forward. if buyers step in and can defend it once more then the market may look to recoup some of the declines seen over the past month but a break below would pave the way for an extension of the downtrend. 

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 Gold is retesting a prior swing level around 1235-1245 and this could be seen as crucial as far as support is concerned. Source: xStation

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