June CPI fell 0.4% mom but oil's rebound above $88 threatens to unwind the disinflation. Brent's technical setup points to a test of $90, which would strengthen the Dollar.
Alpha Score of 49 reflects weak overall profile with strong momentum, poor value, moderate quality. Based on 3 of 4 signals – score is capped at 90 until remaining data ingests.
The Dollar ended last week without a clear direction, caught between two conflicting forces. June CPI and PPI both surprised to the downside, with headline CPI falling 0.4% month on month and core CPI unchanged. That was the strongest disinflation signal in months. Yet the Greenback stabilized rather than extended its decline, because a simultaneous escalation in the US-Iran conflict sent oil prices sharply higher. Brent crude closed above $88, WTI above $80.
The composition of the inflation slowdown mattered. Lower gasoline prices accounted for a large share of the improvement. As energy markets reversed later in the week, investors recognized that June's encouraging data rested on a foundation already shifting. The disinflation story looked genuine but fragile.
Federal Reserve officials acknowledged the improvement but showed no willingness to signal rate hikes were off the table. Chair Kevin Warsh told Congress inflation remained too high. Governor Christopher Waller said another rate hike could be warranted if data surprised to the upside. Dallas Fed President Lorie Logan became the first official to publicly support another increase since Warsh became chair.
The market's focus has shifted from what inflation did to what it might do next. Brent crude's rally from $70.14 has taken on the characteristics of a five-wave impulsive advance, with the close above the 55-day EMA at $85.75 strengthening the bullish case. The next test is the 38.2% retracement of the $119.50 to $70.14 decline at $89.00, near the $90 psychological level. A decisive break above that zone would target the 61.8% retracement at $100.64.
US 10-year yields dipped to 4.51% but recovered after drawing support from the 55 four-hour EMA. The correction from 4.69% appears to have completed at 4.36%, and the rise from 3.96% is resuming. Above 4.62% resistance would target a retest of the 4.69% high.
NASDAQ's selloff on Friday broke below the 55-day EMA at 25,634, suggesting the consolidation from 27,190 is extending with another falling leg. Strong support is expected around the 38.2% retracement of the 20,690 to 27,190 rally at 24,707. A firm break below that level would risk a deeper selloff to the 61.8% retracement at 23,173.
The Dollar Index's correction from 101.80 extended lower but held above the 38.2% retracement of the 97.62 to 101.80 move at 100.20, as well as the 55-day EMA at 100.17. Further rally is expected. Above 101.32 minor resistance would bring a retest of 101.80. A sustained break of the 55-day EMA would open the door to a decline back to 97.62.
EUR/USD extended its consolidation above 1.1323. With 1.1499 resistance intact, further decline is expected. A break of 1.1323 would resume the fall from 1.2081, targeting the 100% projection at 1.1175. A decisive break of 1.1499 would turn bias back to the upside for 1.1621.
The next major catalyst is the July CPI release on Aug. 13. Until then, oil prices will drive the Dollar's direction. If Brent breaks above $90, expectations for another Fed rate hike will strengthen, supporting the Greenback. A de-escalation that sends crude lower would revive the disinflation trade and weaken the Dollar.
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