Dollar mildly softer on the day but still holding its ground this week

It’s one of those summer days in Europe as markets are keeping quiet but the dollar is mildly softer across the board. It isn’t much in the context of trading ranges this week and it is likely to keep that way until we get to the US CPI report tomorrow.

But at least there are some interesting bits and pieces on the charts to take note of. Let’s take a look.

Firstly, EUR/USD is consolidating its downtrend from the middle of last month just below the 1.1000 mark. The key support level to watch in all this is the 100-day moving average (red line) – now seen at 1.0925. Hold above that and buyers may rekindle hopes for any upside rebound but break below and that will set off increased selling pressures on the pair. The next key downside target will be the 1.0800 mark and the 200-day moving average (blue line).

Next, we have USD/JPY who is keeping just above 143.00 on the day. After the strong rise in the past two days (despite falling yields yesterday I might add), the pair seems to be running into some short-term resistance from last week’s highs at 143.54-88 currently. That should stay in play until we get to the US CPI report tomorrow.

Given the latest backdrop, buyers are certainly in the driver’s seat and the fact that 10-year JGB yields are falling back below 0.60% isn’t exactly encouraging of a change in narratives for the BOJ outlook.

A strong set of inflation numbers tomorrow could well set the pair on course for a trip back towards testing 145.00 again, in which Japanese officials so far have been quieter about.

And then, we have AUD/USD which after running into a double-top near 0.6900 last month has fallen all the way back to retest the lows for the year at around 0.6500 yesterday. That’s the key line in the sand for any extension to the downside leg for the pair right now.

A lot will come down to what the US CPI report tomorrow has to offer but as I’ve highlighted previously, the aussie side of the equation also isn’t doing too well and that’s not too encouraging for those hoping for a major rebound in AUD/USD from hereon.

I think at this stage, any trip back to 0.7000 in the bigger picture is pretty much scuppered and all else being equal, the pair is likely to invite more downside pressure amid the record rates differential between the US and Australia at the moment.