Forex Today: Market focus shifts away from trade to US CPI inflation data

Here is what you need to know on Tuesday, July 15:

Markets are in a cautiously optimistic mood in the early European trading hours on Tuesday, weighing US President Donald Trump’s latest tariff threats and criticism of Federal Reserve (Fed) Chairman Jerome Powell against upbeat China’s second-quarter Gross Domestic Product (GDP) data.

Trump threatened to impose severe tariffs on Russia if President Vladimir Putin does not agree to a peace deal with Ukraine in 50 days.  

In a BBC interview this Tuesday, Trump said that “I'm disappointed in him (Putin) but I'm not done with him.”

Meanwhile, late Monday, the US President slammed Powell once again, noting that “interest rates should be at 1% or lower, rather than the 4.25% to 4.50% range the Fed has kept the key rate at so far this year.”

On the data front, China’s economy expanded by 5.2% in the second quarter, beating the estimates of a 5.1% growth, albeit a slowdown from the 5.4% increase reported in the first quarter.

The nation’s annual Retail Sales disappointed with 4.8% in June, while the Industrial Production showed a bigger-than-expected increase of 6.8% in the same period.

Investors continue to trade with caution, despite the Chinese optimism, ahead of the all-important US Consumer Price Index (CPI) data for June due for release later in the American session on Tuesday.

The US inflation data holds the key to gauging the scope and timing of the Fed’s interest rate cuts. Therefore, traders resort to taking profits off the table on their US Dollar (USD) long positions, following its recent recovery from nearly four-year troughs.

However, the USD downside appears capped, courtesy of the sustained bullish pressure surrounding the USD/JPY pair.

Japanese government bonds experienced an intense selling wave, with the yields spiking to multi-year highs on looming fiscal concerns amid an uncertain political scenario. The domestic bond market turmoil continues to undermine the Japanese Yen (JPY).

Citing a story from Asahi newspaper, Reuters reported that “Japan's ruling coalition will likely lose its majority in the upper house election on July 20, heightening the risk of political instability at a time the country struggles to strike a trade deal with the US.”

EUR/USD is recovering toward 1.1700, helped by a subdued USD performance against its major peers, while anticipating fresh cues on the trade talks between the European Union (EU) and the United States (US). The mid-tier German ZEW Survey and the Eurozone Industrial Production data are also in focus.

A Wall Street Journal (WSJ) report cited in early Asia on Tuesday that the EU is preparing tariffs on US goods, including aircraft, alcohol, coffee, and medical devices worth 72 billion euros ($84 billion) in case no trade deal is reached by August 1.

GBP/USD is grinding higher toward 1.3450 as improved risk appetite helps the higher-yielding Pound Sterling.

Antipodeans are finding some comfort from China’s economic resilience, though AUD/USD is rangebound at around 0.6550. The NZD/USD pair is approaching the 0.6000 round level, moderately higher on the day.

USD/CAD remains confined in a narrow range around 1.3700 amid the renewed weakness in Oil price and the Greenback. Traders await the Canadian and US inflation data for a clear directional impetus.

WTI extends the previous sell-off to trade near weekly lows below $65.50, shrugging off US-Russia geopolitical and trade tensions.

Gold rebounds firmly to retest the key 23.6% Fibonacci Retracement level of the April record rally at $3,377. The daily technical setup remains in favor of buyers.