New York Forex Report: Will Whipsaw Week End With A Whimper?

New York Forex Report: Will Whipsaw Week End With A Whimper?

New York Forex Report: We reach the end of a rather tumultuous week, which probably has more to do with the time of year rather than actual market shifting news. A slight “risk-off” feel today after yesterday’s 1.5% fall in the S&P 500, mostly born out through JPY cross weakness. After a strong start to the week for US yields and the USD, the Fed minutes if nothing else were a reminder that a hike in December is not assured, especially after the most recent lacklustre inflation print. President Trump’s collection of CEOs quitting didn’t help, which culminated in the USD and rates coming straight back under pressure. The surprise mention of EUR strength in the ECB minutes caught the market by surprise, but EURUSD weakness again found good support under 1.17. This backdrop fits with our 1-3 day technical outlook for a last move higher towards 1.20 before a more significant correction can develop (GBPUSD has already seen such a peak develop at 1.3270). Next week we get a plethora of European PMIs, but President Draghi’s talk on Tuesday maybe more important than his address at Jackson Hole at the end of the week. Into this weekend geo-political risks remain, but are subdued. With so little data today and most markets around mid-range, surely the odds are favoured for a calmer end to the week, although equities are likely the disruptor after yesterday’s moves. In terms of what we do get it is focused around the US, with another speech by the Fed’s Kaplan and the University of Michigan consumer sentiment reading for August. We already know Kaplan’s stance that it would be appropriate for the Fed to be patient on raising interest rates, especially while inflation remained below 2%. Meanwhile, the University of Michigan’s consumer sentiment index is expected to have stabilised in August.

USD Initial jobless claims fell more than expected to 232k for the week ended August 12 while Philly Fed business outlook also moderated less than expected to 18.9 in August. Industrial production continued to grow albeit at a slower pace of 0.2% MoM in July dragged by a surprised 0.1% MoM decline in manufacturing production, in line with recent softness seen in other manufacturing indicators. This offset gains in utilities and mining. Smaller gain in leading index in July (+0.3% vs +0.6%) was dragged by softer average workweek, new orders, stock prices and a decline in building permits, pointing to more moderate growth ahead.

EUR ECB minutes turned cautious and we sensed a tinge of dovishness. Following the footstep of RBA, ECB expressed concerns over a strong EUR, more so on risk of the currency overshooting its fundamentals in the future that could derail growth and inflation target in the region. Officials remarked that there was a lack of conclusive evidence of sustained uptrend in underlying inflation, and that it was important to ensure inflation expectations remained well-anchored, signalling any policy shift in the in the immediate horizon. There was also no further insights on QE tapering from the minutes, other than the “post summer” remark given by President Draghi after the previous ECB meeting.

GBP UK retail sales ex-auto fuel grew at a slower pace of 1.5% YoY in July, underscoring soft domestic spending even though the better than expected MoM gain of 0.5% MOM offered some comfort consumer spending is not as weak as expected.

JPY Trade figures delivered an early boost to JPY Thursday as market participants responded to a higher than expected trade surplus and stronger growth in both exports and imports.

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

Technical: 1-3 Day View – Continued test of bids just below 1.17 attract buyers, as this level contains downside reactions bulls look for a retest of cycle highs en route to 1.20, intraday upside hurdle sited at 1.1850, only a daily close below 1.1620 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: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – Expect a retest of 1.28, near term resistance is sited at 1.2950, only a close over 1.3030 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

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

Technical: 1-3 Day View – 108.93 downside objective achieved anticipated profit taking pull back on the initial test of this level playing out, near term resistance sited 111, a daily close over 111.65 neutralises downside pressure, near term support sited at 108.73

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

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

Technical: 1-3 Day View – Support at 128.00 survives as this holds there is potential for a retest and breach of cycle high at 131.39, however failure to recapture 1.30 sets up a retest of 128 and failure here sets a top for retest of 125.80.

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

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