New York Forex Report: Core Inflation Data Eyed

New York Forex Report: Core Inflation Data Eyed

New York Forex Report: Risk markets remain under pressure due to geopolitical tension between the US and North Korea. US equity markets came under renewed selling pressure yesterday, which saw safe haven currencies like JPY and CHF benefit, as did the long end of the bond market, while commodity currencies continue struggle, not helped by a very sharp reversal lower in oil prices. With this backdrop, if this afternoon’s US CPI data is particularly weak it has the ability to push these already nervous markets further. ‘Headline’ CPI inflation fell in June for the fourth successive month, while the core rate was stable at 1.7%, its lowest level since early 2015. The Fed acknowledged this recent slowdown in inflation in the statement released after the July FOMC monetary policy meeting. That helped fuel speculation that US policy rates will not be raised again this year. The decline in oil prices helped pull down overall inflation in June, but the price rebounded sharply in July. Most of the increase occurred late in the month and so its impact is more likely to be seen in the August data, but it will likely have had some effect in July. The recent slippage in ‘core’ inflation has been due to a number of factors, including lower mobile phone charges. As these are unlikely to be repeated in the second half of the year, we expect the ‘core’ rate to start to edge up. The Fed’s Kaplan, who is one of the more “hawkish” members of the Fed, is speaking later which may provide an insight into how concerned they are re-inflation. Important data for Japan and China will be released early Monday. In Japan, Q2 GDP growth is expected to have accelerated to 0.6% from 0.3% in Q1. For China, industrial production, retail sales and investment out turns for July will be watched for indications economic activity is stabilising.

USD US July PPI dropped to -0.1%MoM, markedly below estimates of +0.1%MoM (from +0.1% in June). This was the largest decline in 11 months. On a year-on-year basis, PPI came in at +1.9%, also below estimates of +2.2%, and below the +2.0% recorded in June. The usual US initial jobless claims edged a bit higher to 244,000 (from 241,000 in the previous week) but the continuing claims went lower to 1.951 million (down from 1.967 million in the preceding week and lower tha n the forecast of 1.96 million.

EUR with a lack of European economic data this week, markets are focusing on political risk, which continues to rise over tensions in Southeast Asia. On the other hand, low inflation levels remain a major headache for ECB policymakers. Inflation in the Eurozone stood at 1.3% YoY in July, well below the bank’s inflation target of 2%. Even Germany, whose economy is very strong, is grappling with weak inflation. The ECB’s ultra loose policy, which includes interest rates of 0.00% and asset purchases (QE) of 60 billion EUR/month, has failed to push inflation upwards. The ECB holds its next policy meeting in September 7 with a strong possibility that the bank will make an announcement regarding tapering QE starting as early as 2018.

GBP Industrial production in the UK picked up pace in June, rebounding from a contraction in May as output was lifted by quicker gains in manufacturing and mining & quarrying. However, pace of growth remains slow compared to recent months. Expansion in UK construction output also improved though much slower than expected. Overall, the NIESR estimated that GDP growth dipped in the three months ending July, adding weight downsides to growth prospects.

JPY If there is an escalation of tensions in Southeast Asia then the USDJPY is likely to plough lower because money would leave higher-yielding assets and seek shelter in lower-yielding, lower-risk assets like U.S. Treasury instruments, gold, the JPY and the CHF. At this time, the USDJPY is mirroring the movement in U.S. Treasury Bonds. This is probably our best indicator today since the news headlines can be deceiving. Lower equity markets will also affect the USDJPY because of the carry trade and flight-to-safety buying.

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

Technical: 1-3 Day View – Pivotal 1.17 survives for now, as this level contains downside reactions bulls look for a retest of cycle highs en route to 1.20, intraday upside hurdle sited at 1.1830, only a daily close below 1.1660 concerns the near term bullish bias setting a top for a test of 1.1440.

1-3 Week View – 1.1876 achieved focus shifts to 1.20 . Weekly close below 1.14 neutralises bullish objectives.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – 1.31 daily closing breach concerns the near term bullish bias opening a retest of 1.28, near term resistance is sited at 1.3080, only a close over 1.3160 reestablishes near term bullish tone

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3263 only a close back below 1.28 would jeopardise the bullish advance.
Retail Sentiment: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – As 109.90 contains upside reactions 108.93 is the immediate downside objective anticipate profit taking pull back on the initial test of this level.

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: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – A breach of 128.00 sets a top for retest of 125.80, near term resistance sited at 129.60

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: Neutral
Trading Take-away: Neutral