Dollar Drops After Cool June CPI; Key Chart Levels Hold
June CPI fell sharply below forecasts, pressuring the dollar, but technical resistance is capping losses across major currency pairs.
The U.S. dollar sold off sharply Tuesday after June's Consumer Price Index came in far cooler than markets anticipated, with headline CPI dropping 0.4% month-over-month against a consensus forecast of -0.1%, and core CPI flat at 0.0% versus an expected 0.2% rise. The broad-based softness spanned core goods, core services excluding housing, and a minimal 0.12% uptick in shelter costs — a combination that reinforced confidence that inflation is trending lower.
Despite the encouraging data, Federal Reserve Governor Christopher Waller warned the previous day that a single positive report is insufficient to shift policy, saying policymakers would need several consecutive months of subdued inflation before feeling confident the battle is won. Eyes now turn to Fed Chair Kevin Warsh, who is scheduled to testify before Congress today, with markets watching closely to see whether his tone aligns with Waller's cautious stance. The report is widely seen as reducing urgency for a rate hike at the next FOMC meeting, but it does not eliminate that possibility.
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A potential headwind for the disinflationary trend: crude oil has climbed back above $80 a barrel — trading near $80.20, up roughly $2.10 on the session. Rising energy prices could gradually erode the tailwind that softer fuel costs have provided to recent inflation readings, giving Fed officials continued reason to maintain a hawkish posture even as the headline numbers improve.
On the charts, dollar weakness has been real but technically contained. EUR/USD rallied to exactly the 38.2% retracement level at 1.14618 before stalling, needing a push above 1.14715 to attract momentum buyers. GBP/USD cleared its 100- and 200-day moving averages near 1.3399 but ran into a swing resistance zone between 1.3446 and 1.3465. USD/JPY slipped below both its 100- and 200-hour moving averages but stopped short of the next significant target near 161.21. USD/CAD broke below key support around 1.4129–1.4143, with room to extend losses toward the 38.2% retracement near 1.39806 if selling pressure intensifies.
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