US CPI Sees Biggest Drop in 6 Years - CPT Markets

Market Wrap-up: US CPI Surprise Drives Broad Market Repricing

Yesterday's session was driven by two major catalysts as markets digested escalating geopolitical tensions in the Middle East alongside a softer than expected US inflation report.

According to data released by the US Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) undershot market expectations across all major measures. Headline CPI declined 0.4% month-on-month on a seasonally adjusted basis, bringing annual inflation down to 3.5%.

Economists surveyed by Dow Jones had expected CPI to fall 0.2% on the month while rising 3.8% year-on-year. In comparison, inflation stood at 4.2% in May. The June monthly decline marked the largest drop since April 2020.

Core CPI, which excludes food and energy prices, was unchanged from the previous month, reducing the annual rate to 2.6%. Markets had anticipated a 0.2% monthly increase and a 2.9% annual reading, matching May's level.

The weaker inflation data prompted investors to scale back expectations for further Fed rate hikes, sending the US Dollar Index (DXY) around 0.4% lower to 100.70 after briefly touching 101.27 earlier in the session.

The weaker US dollar provided broad support for major currencies, with the euro, British pound, and Japanese yen all advancing after several sessions of weakness earlier this week.

Precious metals also rallied sharply. Gold briefly traded below the $4,000/oz mark ahead of the CPI release before rebounding 1.2% to test the $4,100 level during the session, supported by the softer dollar and lower rate expectations.

In energy markets, US President Donald Trump withdrew his proposal to impose a 20% transit fee on goods passing through the Strait of Hormuz. Instead, Gulf states are expected to invest in the United States as an alternative form of compensation.

However, geopolitical risks remained elevated as the US military continued airstrikes against Iran, helping Brent and WTI crude extend gains of more than 1.5%.

Markets also closely monitored the first congressional testimony of Fed Chair Kevin Warsh. Warsh pledged to end what he described as five years of excessive inflation, reiterating that the Federal Reserve would remain uncompromising in its fight against persistently elevated price pressures.

Looking ahead, traders will focus on the US Producer Price Index (PPI), the second day of Fed Chair Warsh's testimony, and a series of speeches from FOMC officials for further guidance on the policy outlook.

XAU/USD: Gold Climbs Above $4,100 on Softer US CPI 

Key takeaway:

Gold climbed more than 1% on 14 July after softer than expected US inflation reduced expectations of further Fed rate hikes, particularly at the July and September meetings.

However, rising oil prices driven by the ongoing US-Iran conflict continue to fuel inflation concerns, reinforcing expectations that interest rates could remain higher for longer. That may limit upside for non-yielding assets such as gold despite the recent rebound.

Technical Outlook:

Daily Bias: Cautiously Bearish

Support: 4,000

Resistance: 4,100

Oil: WTI Extends Gains on Middle East Tensions 

Key takeaway:

Oil prices advanced on 14 July as the United States continued airstrikes against Iran ahead of the planned reimposition of maritime restrictions.

President Trump abandoned the proposal requiring vessels to pay a fee equal to 20% of cargo value to transit the Strait of Hormuz under US military protection. Instead, Gulf states are expected to invest in the United States as an alternative arrangement.

Meanwhile, Iran's Islamic Revolutionary Guard Corps stated that it had targeted two supertankers transiting the Strait of Hormuz with their identification systems switched off, keeping geopolitical risk premiums firmly embedded in oil prices.

Technical Outlook:

Daily Bias: Bullish

Support: 78.81

Resistance: 82.00

DXY: US Dollar Slides After Soft Inflation Report 

Key takeaway:

The US Dollar Index (DXY) declined on Tuesday after softer-than-expected US inflation data reduced demand for the greenback and prompted markets to reassess expectations for additional Fed tightening.

Chicago Fed President Austan Goolsbee described the inflation report as "surprisingly encouraging," noting that the services component showed meaningful improvement.

However, he cautioned against drawing conclusions from a single month's data, stressing that several similar inflation reports would be needed before gaining greater confidence that inflation is moving sustainably lower.

Technical Outlook:

Daily Bias: Bearish

Support: 100.50

Resistance: 101.20

EUR/USD: Euro Rises as Fed Bets Ease, ECB Bets Build 

Key takeaway:

The euro strengthened sharply after weaker-than-expected US inflation reduced pressure on the Federal Reserve to tighten policy further, weighing on the US dollar.

At the same time, traders increased expectations that the European Central Bank (ECB) could raise interest rates more aggressively as higher oil prices renewed inflation concerns across the euro area.

According to Bloomberg, markets are pricing in a 25 basis point ECB rate hike in September and are increasingly expecting another increase before year-end.

Technical Outlook:

Daily Bias: Cautiously Bullish

Support: 1.13914

Resistance: 1.14729

USD/JPY: Softer US CPI Lifts the Yen 

Key takeaway:

The Japanese yen strengthened against the US dollar after softer US inflation prompted traders to scale back expectations for a more hawkish Federal Reserve.

At the same time, the wide interest rate differential between the United States and Japan continues to support carry trade demand. This remains an important factor limiting broader JPY appreciation and suggests caution when positioning for a deeper decline in USD/JPY.

Technical Outlook:

Daily Bias: Bearish

Support: 161.61

Resistance: 162.28

Markets are being pulled in two directions. Softer US inflation has weakened the dollar, lifted gold, and supported major currencies by reducing expectations of additional Fed tightening.

At the same time, continued US-Iran tensions are keeping oil prices elevated, preserving inflation risks and preventing markets from fully embracing a dovish policy outlook.

For now, the softer CPI report is driving short-term positioning across FX and precious metals, while geopolitical developments continue to underpin energy markets.

Traders will now shift their focus to the US PPI report, the second day of Fed Chair Kevin Warsh's testimony, and comments from FOMC officials to assess whether easing inflation can outweigh persistent geopolitical and energy-driven price pressures.

If you are looking for a platform to take advantage of market volatility, CPT Markets is a compelling choice. Trade global markets on advanced trading platforms with competitive spreads, fast execution, and a seamless experience across all devices.

Whether you are a beginner or an experienced trader, trading short-term or long-term, the right platform can make the difference - Trade smarter with CPT Markets!

This content is provided for informational purposes only and does not constitute investment advice, investment recommendations, or an offer or solicitation to buy or sell any financial instrument. Trading financial products such as Forex and CFDs involves a high level of risk and may not be suitable for all investors. You may lose all of your invested capital, and in certain circumstances, losses may exceed your initial deposit. Please ensure that you fully understand the risks involved and carefully consider your financial objectives, level of experience, and financial situation before trading.