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Canada will be releasing CPI (inflation) data today, which is expected to show a month-on-month contraction of 0.1%, slowing quite markedly from last month's increase. This would leave the annualised rate unchanged. If there are any surprises, it will likely affect the relative value of the Loonie (Canadian Dollar).
The Fed meeting is this week’s dominant event. The Federal Reserve will announce its policy decision on Wednesday. Friday’s core US CPI data were stronger than expected, lifting the market-implied probability of a rate hike to approximately 87%, compared with an approximately 60% probability late last week. A 0.25% hike now appears likely, but the accompanying statement and guidance on further tightening will determine the Dollar’s next major move. These developments have strengthened the greenback (US Dollar) which has gained materially since this week's Tokyo open, assisted higher by the 10-year treasury yield approaching a long-term high just a fraction below 5%.
The Bank of Japan will be holding a policy meeting at the end of this week at which it is expected to hike its interest rate from 1,00% to 1.25%, supported by revised second-quarter GDP growth of 1.4% and elevated import inflation. The Japanese Yen has given back some of its recent sharp gain. USD/JPY has rebounded from below 153.00 to above 154.00 after the Yen’s earlier strong rally paused.
Crude oil remains extremely volatile and also elevated. WTI settled at $100.05 on Friday and Brent at $104.61, following another week of major price gains caused by supply risks around the Strait of Hormuz. However, both benchmarks corrected sharply late last week, showing that the oil market is sensitive to any signs that the disruption may not become a prolonged physical supply loss. The fundamental crude oil picture remains bullish but risky. Hormuz shipping and Saudi pipeline capacity remain the key variables. Any credible de-escalation or evidence of restored shipping flows could trigger a further sharp fall in oil, while prolonged attacks or evidence of a broader supply shortfall could keep Brent above $100. Traders should expect exceptionally high intraday volatility.
Agricultural commodities remain broadly bullish. The USDA’s latest estimates reduced its forecast for the US corn yield to 178.5 bushels per acre, cut projected production, and lowered carryout. It also raised season-average price projections for corn, soybeans, wheat, sorghum, and cotton. This supports the broader bullish trend in grains, especially Corn and Soybeans. Most trend traders will still be long of Soybeans and Sugar.
Gold is under renewed pressure. Gold is trading near $4,300 and looks likely to break significantly lower at any moment as its price action is so heavy. Rising Treasury yields, stronger inflation data, and the increased probability of a Fed hike are weighing upon the metal. The important nearby support zone is approximately $4,320 to $4,230; a decisive break below it could produce a deeper bearish move.