After the US Jobs Report outcomes, which came in much better than expected, estimates were rising that the Federal Reserve will still be able to raise the Fed Fund Rate in September and probably in December.
Such outcomes and the notable rise in the estimates of two more rate hikes this year has pushed the US Dollar higher at the beginning of last week. However, this has changed at the end of last week (Thursday and Friday).
PPI Shockingly Weaker
On Thursday, the PPI outcomes came in shockingly weaker including PPI and Core PPI, on MoM and YoY basis.
The Core PPI slowed down to 1.8% in July compared to 1.9% in June, despite the fact that the estimates were to rise toward 2.1%. This is the second slowing down in a row and the lowest reading since Mach.
Moreover, the YoY PPI slowed to 1.9% down from 2.0% during the same period, while it had been anticipated to rise toward 2.2%. This is the third slowing down in a row, one we have not seen since 2014 and the lowest reading since January.
Inflation Slightly Higher
On Friday, the slight increase in inflation data was considered as a disappointment, which eased the estimates for a possible rate hike in September and December.
The Core CPI YoY stabilized at 1.7% in line with the market estimates, while the MoM increased by less than expected.
Moreover, the YoY CPI ticked higher to 1.7% in July compared to 1.6%, while the estimates were to rise further to 1.8%. The MoM also increased less than expected.
Fed Fund Futures Pricing In No Further Rate Hike This Year
The Fed Fund Futures had a bumpy ride over the past few weeks, declining sharply before the US Jobs Report, then spiked above 60% after NFP. Yet, after last week’s data, it tumbled sharply to show no indication of any further rate hikes ahead.
September’s Fed Fund Futures are pricing in less than 20% chance of a possible rate hike, while December is now around 40% chance. In return, USD bears returned and might stay in control this week.
Key Data This Week
Everyone should keep an eye on the US Retail Sales this week, especially after the notable decline for the past two months. Retail Sales and Core Retail Sales declined for two months in a row, one we have not seen since 2015.
Another disappointment outcome would kill the possibility for any rate hike this year. In addition, it will eliminate the idea of trimming the Fed’s balance sheet anytime this year.
USD At A Crossroads
As we noted at the beginning of last week, the US Dollar is now trading around a key support area, between 93.0 and 91.80, which have been supporting the index since 2014 until today.
The US Dollar managed to rise slightly from that area, but last week it closed the week lower once again. There is still more room for further declines ahead. However, a fundamental catalyst is needed.
This might come from this week’s economic releases. A disappointment outcome would clear the way for another leg lower below 93.00 and may test its 200 WEEK MA which stands at 92.46, while a breakthrough that support would lead to another leg lower to test the lower band of the support area around 91.80.
This is where things will become more interesting. One more bounce from there would be more likely, unless if bears has the power to keep pushing lower. If so, the US Dollar medium term down trend would be confirmed by a weekly close below 91.80 support area.