Weekly Focus: FOMC Minutes and U.S. Retail Sales

The unexpected rise of producer prices in July was disappointing for investors. The Core Producer Price Index (PPI) rose by 2.4% YoY in July missing consensus at 2.3% YoY. More importantly is that headline PPI rose by 0.8% YoY in July from 0.2% YoY in the previous month, again above consensus of 0.7%. 

Such developments pushed debt yields up. U.S. 10-year Treasuries’ yields rose to 4.18%, the highest level since November 2022, while 2-year bonds’ yields neared 4.91%. Discussions of another possible interest rates hike by the Federal Reserve (Fed) have also intensified. Investors do not believe the Fed will raise its rates in September, but see high chances for such move in November or December this year. 

Bill Gross, the one-time bond king, said stock and bonds are “overvalued.” The former chief investment officer of Pacific Investment Management Co said the fair value of the 10-year Treasury yield is about 4.5%, which is the level of November 2007. This is way above the 4.18% that led U.K debt market to deteriorate in September 2022. Further spike to 4.5% may initiate a global debt crisis.

This week investors will monitor retail sales numbers in the United States that are expected to accelerate to 0.4% MoM in July from 0.2% MoM in June. FOMC Minutes that will be released on Wednesday would be also of great interest. They are expected to be hawkish this time if one looks on the debt market. Currency market signals rather of a weakening Dollar. Anyway, investors should be ready for surprises.

Other major macro events include numbers on China’s labour market and its industrial production in July, inflation in the United Kingdom, GDP growth in the Eurozone and Japan. All these information would be a matter of discussion for further decisions by central banks and governments.

Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The benchmark is resting below the resistance at 4480-4500 points. It is unlikely to go further up, and could dive to the support at 4390-4410. The downside signal has been finally shaped with a short trade initiated at 4520 points.

Brent crude prices continues to struggle around the resistance at $86.00-88.00 per barrel. The support is located at $74-76 per barrel. This downside could be reached if prices will dive below $85 per barrel. If prices would soar above $88 the rally to $95 per barrel will become a primary scenario. If prices would fell below $74 per barrel a recession scenario with targets at $67-69 per barrel of Brent crude will be initiated. 

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But, the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. The nearest support is set at $1900-1920 per ounce. However, the similar scenario of August 2011 signals that this support will be very hard to breakthrough in the coming weeks. 

The Greenback has strengthened during the last week, still looking solid compared to its major peers. A sharp correction of the American currency could be expected in August. If such a correction would emerge, good buy opportunities for the Dollar should appear. But before then, a risky long trade with a small amount is seen for GBPUSD from 1.27200-1.27400 with a target at 1.29400-1.29600, and a stop-loss at 1.26000. The long trade in the AUDUSD from 0.65100-0.65300 with a target at 0.66500 with the stop-loss at 0.64800 was closed after a stop-loss order was heated by the price. This trade could be reopened at 0.64700-0.64900 with the same target and the stop-loss at 0.64400.

If these trades will be successful, a further weakening of the Greenback could be expected. It would be better to wait for a decline of the EURUSD below 1.05000 to seek out sell opportunities for the Greenback in this regard.