A Stellar Week in Response to Very Promising US Inflation Data

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

It’s shaping up to be quite a relaxed end to the week, one in which we’ve seen stellar gains on the back of some very encouraging inflation data from the US.

While there have been occasions when stock markets have performed well this year despite not appearing to reflect the fundamental reality of rapid economy-threatening rate hikes, the inability to really turn a corner on inflation has held them back. But perhaps that corner is now being turned.

Inflation was already well off its highs but there was something about this report that was different. Not only did it beat on the headline and core level but both of the monthly readings were also incredibly positive. Now it’s just a question of whether that can be sustained.

The light at the end of the tightening tunnel is getting brighter and investors are increasingly confident of emerging after one more hike in two weeks. At which point the focus will turn to the economy and whether a soft landing can still be achieved before the discussion pivots to rate cuts.

The next risk comes from earnings season which gets underway today, with JP Morgan, Wells Fargo, and Citigroup all reporting on the second quarter.

Oil has made incredible gains and overcome a major resistance level

Oil is trading relatively flat today but has made tremendous gains over the last couple of weeks and could still add to that over the coming sessions. The price has risen more than 13% from the lows on 28 June and, despite appearing to struggle at times yesterday, still has plenty of momentum.

The break above $80 was very significant after multiple efforts by Saudi Arabia and its allies to manipulate the price to more sustainable levels, from their perspective. It could face an interesting test around $83-$84 if it keeps rallying, while a move lower will draw attention back to $80 and whether we’ll get that confirmation of the initial breakout.

Gold stalls after post-inflation boost

Gold has stalled around $1,960 after surging in the aftermath of the US inflation data earlier this week. The yellow metal had already pulled off its lows at this point in anticipation of a friendly report but what it got was so much more.

Now it’s a question of whether what we’re seeing is a corrective move as part of the downturn since May or if that downturn was in fact the correction. The first test is $1,960, with $1,980 and $2,000 above the next levels to overcome. These represent the 38.2%, 50%, and 61.8% Fibonacci retracement levels of the May highs to June lows, respectively. And of course, $2,000 could be a major psychological barrier.

If we do see gold pare gains, the obvious test below comes around $1,940 having been a significant resistance level in recent weeks. A rebound off here could be seen to be confirmation of this week’s breakout.

Has bitcoin finally broken higher?

Bitcoin has finally broken higher, days after risk assets throughout financial markets were boosted by the US inflation data. I can’t imagine this is a lag effect or anything like that, it was extremely volatile around the release it just didn’t commit in either direction. It has now broken above $31,000 after weeks of consolidation although it isn’t particularly convincing at this stage. Broadly speaking, it’s still trading like an instrument in consolidation.