US CPI Falls (Finally)

The US Dollar plunged lower yesterday on the back of the April CPI and retail sales readings. On the inflation front, annualised CPI was seen declining for the first time in six months, dipping to 3.4% from 3.5% prior. Looking at the monthly readings, core dipped to 0.3% from 0.4% as forecast while the headline reading fell to 0.3%, below 0.4% expected. While still at elevated levels, the decline has raised hopes that the inflationary surge we’ve seen over the first half of the year has ended, putting the focus back on Fed easing expectations.

Retail Sales Drop Too

Alongside the dip in inflation, retail sales were also seen falling back last month. Headline retail sales came in at 0% down from 0.6% prior and below the 0.4% expected, meanwhile, the core reading fell to 0.2% from 0.9% prior. With consumer spending falling, the jobs market slowing and inflation stalling, traders are now expecting the Fed to cut rates in September with at least two rate cuts projected this year, below the three the Fed itself has forecast. Traders will now be keeping a close eye on incoming US data with any further weakness likely to push USD down deeper as rate cut expectations solidify.

Technical Views

DXY

The sell off in DXY has seen the index breaking below the 104.95 level support. Price is now testing the bull channel lows, which are holding for now. With momentum studies bearish, however, focus is on a continued push lower while below 104.95 with 103.48 the next support to note. 

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