New York Forex Report: Buck Bounces Off Ten Month Lows

New York Forex Report: Buck Bounces Off Ten Month Lows

New York Forex Report: The USD is tracking a slightly higher course in dealing so far this week though gains are marginal and the broader undertone for the currency remains soft, near a ten month low, after last Friday’s CPI data added to the sequence of disappointing US inflation data which casts doubt over the Fed’s ability or desire to keep pushing interest rates higher. This week’s data calendar is not especially full stateside housing data and activity surveys primarily, but the regional Fed surveys and the Markit PMI numbers will give and early look at Jul activity trends at least. Central bank meetings (both the ECB and the BoJ deliver policy decisions Thursday) may hold a little more interest for markets, although most betting on the ECB suggests September is a more likely time for any tapering announcement.

USD Macro flow from the US mostly came through on the softer tone. CPI rose 1.6% YoY in June, slowing from 1.7% previously as energy prices continues to drag and missed estimates of a pick-up to 1.9%. Meanwhile, retail spending declined for a second consecutive month, dipping 0.2% MoM in Jun from a 0.1% contraction in May. Excluding the volatile automobile purchases, sales still registered a 0.2% drop, overturning the 0.1% growth previously. Both reports will likely catch the attention of the Fed; recent cooling of US data will weigh onto the Fed’s consideration of quicker than intended policy tightening. Further signs of softer spending in the US is reflected by dimmer consumer sentiment; the University of Michigan gauge unexpectedly fell to 93.1 in July early print from 95.0 in June, while expectations of future conditions fell to 80.2 from 84.4. The only saving grace was that industrial production growth quickened to 0.4% MoM in June, up from 0.3% and beating estimates of a slowdown to 0.1%. Production in manufacturing sector rose 0.2%, rebounding from a 0.4% fall in May, while output in utilities steadied at 0.8%. The data sent the Dollar to new year to date lows.

EUR potential for ECB-related headline risk into Thursday’s meeting, with Reuters reporting on policymakers’ concerns about providing an end-date to the asset purchase programme. The headlines follow rumors surrounding the pace of QE into Q4, with expectations of a decline in the pace from 60bn/month to 40bn/month—likely to be announced in September. This week’s introductory statement could see an adjustment in the passage ‘we stand ready to increase our asset purchase programme in terms of size and/or duration’. We expect a removal of ‘size’, allowing the ECB to maintain flexibility in terms of the end date while signaling the balance of risk to the pace of QE

GBP outperformed most of the G10 currencies into the close of last week. This week’s CPI and retail sales releases are crucial as policymakers consider the implications for growth in the post-Brexit environment, with consumer spending a key area of concern. A range of policymakers have shifted their tone in recent weeks, with notable hawkish turns from both Governor Carney and Chief Economist Haldane

JPY industrial production climbed 6.5% YoY in May, slightly lower than 6.8% in an early gauge but nonetheless the quickest growth since Mar 2014. This indicates external demand continues to improve, likely offsetting signs of slowdown on the domestic front. Relative central bank policy is set to remain dominant throughout this week as we look to the BoJ policy decision, potential adjustments to the CPI forecast, and comments regarding the yield curve control policy. Spreads have retreated somewhat, in a JPY supportive manner, on the back of the recent decline in Treasury yields. The BoJ’s attempts at yield curve control may be challenged in the absence of a renewed upswing in global yields.

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – As 1.1400/1.1380 supports bulls target 1.1530 as the next upside objective ahead of 1.1591 equidistant swing objective, a daily close below 1.1330 concerns the near term bullish bias and open a test of 1.1280/60

1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.1450 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – 1.3048 achieved as 1.3030 supports on an intraday basis bulls target pivotal 1.3238, only a daily closing breach of 1.2810 concerns the near term bullish bias.

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3238 only a close back below 1.28 would jeopardise the bullish advance
Retail Sentiment: Bearish
Trading Take-away: Long

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Upside objective 114.35 achieved, profit taking pull back extends and threatens broader correction on a breach of 112.10 delaying the bullish target at 115.50 and opening a move back towards 109.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Failure below 129.30 concerns bullish bias and delays the target 133.36, only below 126.80 negates the medium term bullish bias. Bulls will look to 128 to terminate the correction.

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, 129.44 upside objective achieves as 128 supports bulls look for a move to test 133.36 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long

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