Weekly Outlook

Summary: Markets on Alert Amid Inflation Data and Rate Expectations

The second week of August was dominated by the release of key economic data from the United States, which dictated the pace and sentiment of global markets. Investors scrutinized every inflation figure for clues about the Federal Reserve's (Fed) next moves, leading to periods of high volatility and recalibrated interest rate expectations.

The week began on a cautiously expectant note. With no major catalysts, markets traded sideways as they braced for Tuesday's crucial US Consumer Price Index (CPI) data. US index futures (S&P 500, Nasdaq 100) saw slight gains, reflecting restrained optimism. Meanwhile, the dollar weakened against major currencies, such as the pound (GBP/USD), on expectations that a moderate CPI reading could solidify the case for a Fed rate cut in September.

Tuesday, 12th August: CPI Euphoria and New Records

Tuesday was the week's most pivotal day. The July CPI data unleashed a wave of optimism across financial markets. Headline year-on-year inflation remained stable at 2.7%, in line with forecasts. The real relief came from the moderation of several key components. Although core inflation (excluding food and energy) was more stubborn at 3.1% year-on-year, markets focused on the headline figure as a sign that inflationary pressures were contained, reinforcing the narrative that the Fed could begin an easing cycle.

The market's reaction was immediate:

• The S&P 500 and Dow Jones both climbed 1.1%, while the Nasdaq Composite led with a 1.4% rise, reaching new all-time highs.
• The dollar index (DXY) weakened further, closing at 98.02.

Wednesday, 13th August: The Rally Extends, Albeit with Less Momentum

Markets continued their upward trend on Wednesday, though with less intensity. The positive sentiment from the CPI reading lingered, with investors nearly fully pricing in a September rate cut. No significant data was released, allowing the rally to consolidate.

Thursday, 14th August: Inflation Ghosts Reappear, Halting Optimism

Optimism was tempered by the July Producer Price Index (PPI), which showed a surprising 0.9% month-on-month increase, far exceeding the expected 0.2%. This reignited inflationary fears, challenging the narrative that price pressures were under control. The market reaction was swift:

• Indices opened lower, with the Nasdaq, sensitive to rate expectations, closing at 2,832 points.
• The dollar regained ground, with the DXY index rising by 0.41%.

Weekly unemployment claims, also released on Thursday, remained low at 224k, indicating a strong labor market, potentially giving the Fed leeway to maintain restrictive rates if inflation persists.

Technical Outlook

GBP/USD

The pound maintained strength against the dollar, breaking above the bearish trendline at 1.37500 and the 50-day moving average, reaching 1.35800 before correcting.

• Bullish Scenario: Holding above the 50-day moving average would validate the breakout, potentially sparking a move toward 1.35800 resistance, with room to retest 1.37500.
• Bearish Scenario: A break below the 50-day moving average would confirm a "double top" at 1.385, signaling a bearish move toward 1.33800 support.

S&P 500

The S pyramids;P 500 continued its bullish run, setting a new all-time high after finding support at6,235. The rally extended to 6,480 but formed a "Doji" candlestick, suggesting indecision.

• Bullish Scenario: Sustained momentum could see the index retest 6,480, with potential targets at 6,500 and 6,550.
• Bearish Scenario: The "Doji" pattern may signal a pause, with a possible "higher low" at 6,346.

WTI Crude Oil

WTI crude remains in a long-term downtrend, failing to surpass $71 and falling below the 50-day and 200-day moving averages to support at $62.83.

• Bullish Scenario: Consolidation above $62.83 could target $65.60 and $67.70.
• Bearish Scenario: A break below $62.83 could push WTI toward $60.90 support.