All Eyes on NFP as Fed Won’t Make a Move on Policy without Substantial Labor Market Growth

The Federal Reserve monetary policy statement and remarks from Fed Chair Jerome Powell set the tone in several financial markets last week with the biggest influence on the U.S. Dollar. Disappointing U.S. economic reports also weighed on the greenback.

Ahead of next week, however, investors are asking whether the sell-off represents a change in the longer-term trend or just a shift in momentum.

With the Fed not scheduled to meet until September 21-22, the move likely represents a shift in momentum since policymakers left in place their change in the timeline for the next interest rate hike that it announced in its June 16 monetary policy statement.

In last Wednesday’s announcement, all it did was push the possible start of tapering nearly seven weeks into the future. It didn’t remove the possibility of tapering and it didn’t move the timeline for the next rate hike so we really can’t call its policy statement “dovish”. It should probably be best described as “less-hawkish”.

Furthermore, the Federal Open Market Committee (FOMC) will have two Non-Farm Payrolls and Consumer Inflation reports under their belt before making its late September policy decision. With the labor market and inflation the biggest concerns for the Fed and likely to exert the most influence on policymakers, these are the two reports that traders should pay attention to during August.

The U.S. will release its Non-Farm Payrolls report on August 6 along with data on Average Hourly Earnings and the Unemployment rate. Non-Farm Payrolls are expected to show the economy added 895K new jobs in July. The unemployment rate is expected to dip from 5.9% to 5.7% and Average Hourly Earnings are expected to remain steady at 0.3%.

Labor Market Growth is Powell’s Major Concern

During July, Federal Reserve Chairman Jerome Powell mentioned his concerns about labor market growth twice in his public speeches. The first mention was mid-month in his testimony before Congress. The second was in his post-monetary policy statement press conference last Wednesday.

On July 14, Federal Reserve Chairman Jerome Powell told Congress that while the economy has come a long way back from its pandemic-induced depths, the labor market “still has a long way to go.”

“Labor demand appears to be very strong; job openings are at a record high, hiring is robust, and many workers are leaving their jobs,” Powell said. “Indeed, employers added 1.7 million workers from April through June. However, the unemployment rate remained elevated in June at 5.9 percent.”

Powell added that the official unemployment rate understates the real condition of the job market as many potential workers remain on the sidelines for reasons ranging from continued fear of COVID-19, enhanced unemployment benefits and difficultly finding child case.

At last Wednesday’s press conference, Powell fielded many questions about inflation, but he also said that hiring needed to progress further before the Fed would be ready to dial down its support for the economy.

“I’d say we have some ground to cover on the labor market side,” Powell said. “I think we’re some way away from having had substantial further progress toward the maximum employment goal.”

Conclusion

While the initial reaction to the Fed and Powell was to sell the U.S. Dollar because the notion of tapering was put on hold at its last meeting, the real move in the U.S. Dollar over the short-term is likely to follow the July Non-Farm Payrolls report, due on August 6.

A weaker-than-expected report for July will be bearish for the U.S. Dollar because traders will start reducing the chances of the Fed announcing the start of tapering at its September meeting. Furthermore, if July employment data is weak then the August report due in September is also likely to be weak if the COVID crisis gets out of control.

For a look at all of today’s economic events, check out our economic calendar.

The Weekly Wrap – A Dovish FED and Weak Stats Left the Greenback in the Red

The Stats

It was a busy week on the economic calendar, in the week ending 30th July.

A total of 71 stats were monitored, which was up from 33 stats in the week prior.

Of the 71 stats, 37 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 4 stats that were in line with forecasts in the week.

Looking at the numbers, 42 of the stats reflected an upward trend from previous figures. Of the remaining 29 stats, 27 reflected a deterioration from previous.

For the Greenback, disappointing economic data and a dovish FED left the Dollar in the red. The Dollar Spot Index fell by 0.79% to 92.174. In the previous week, the Dollar had risen by 0.24% to 92.906.

Out of the U.S

Consumer sentiment and durable goods orders drew attention early in the week.

In June, durable goods orders ex transportation rose by 0.3%, following a 0.5% increase in May.

More significantly was a pickup in consumer confidence in July. The CB Consumer Confidence Index rose from 128.9 to 129.1. Economists had forecast a decline to 126.0.

On Thursday, jobless claims and 2nd quarter GDP numbers were in focus. The stats were skewed to the negative, however.

In the 2nd quarter, the U.S economy grew by 6.5%. This fell well short of a forecasted growth of 8.5%.

Jobless claims also fell short of expectations, with initial jobless claims falling from 424k to 400k. Economists had forecast a decline to 370k.

At the end of the week, personal spending and inflation figures came in ahead of forecasts, however.

Personal spending rose by 1.0% in June, with the annual rate of inflation seeing a pickup from 3.4% to 3.5%.

While the stats were material, the FED monetary policy and press conference were the main events of the week.

In line with market expectations, the FED left policy unchanged. The FED Chair also looked to assure the markets that there would be no near-term moves, the guidance considered dovish.

Out of the UK

It was a particularly quiet week. There were no major stats for the markets to consider in the week.

The lack of stats left the Pound in the hands of IMF economic growth forecasts, which delivered Pound support.

In the week, the Pound rose by 1.13% to end the week at $1.3904. In the week prior, the Pound had fallen by 0.14% to $1.3748.

The FTSE100 ended the week up by 0.07%, following a 0.28% gain from the previous week.

Out of the Eurozone

Through much of the week, the German economy was in focus.

Business and consumer sentiment figures delivered mixed results. While business sentiment waned in July, consumer confidence remained unchanged, in spite of the reopening of economies.

Unemployment figures from Germany were upbeat. The unemployment fell from 5.9% to 5.7% in July.

Inflationary pressures continued to surge, however, with Germany’s annual rate of inflation accelerating in July to 3.8%.

At the end of the week, 1st estimate GDP numbers and prelim inflation figures were the key stats of the week.

Quarter-on-quarter, the French economy grew by 0.9% versus a forecasted 0.7% in the 2nd quarter.

Germany saw growth of 1.5%, falling short of a forecasted 1.9%. In the 1st quarter, the economy had contracted by 2.1%.

For the Eurozone, the economy grew by 2.0%, coming in ahead of a forecasted 1.5%. The economy had contracted by 0.3% in the previous quarter.

Inflation also ticked up, aligned with member state numbers. According to prelim figures, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, rising above the ECB’s 2% target.

For the week, the EUR rose by 0.84% to $1.1870. In the week prior, the EUR had fallen by 0.30% to $1.1771.

The DAX30 fell by 0.67%, while the CAC40 and the EuroStoxx600 ended the week up by 0.67% and by 0.05% respectively.

For the Loonie

It was a relatively quiet week on the economic data front.

Inflation and GDP numbers were the key stats of the week.

In June, the annual rate of inflation softened from 2.8% to 2.7%, bucking the trend seen across key economies.

The Canadian economy also continued to struggle in May, with the economy contracting by 0.3%. The economy had contracted by 0.5% in April.

In the week ending 30th July, the Loonie rose by 0.71% to C$1.2475. In the week prior, the Loonie had risen by 0.39% to C$1.2564.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

While the Aussie Dollar fell by 0.30% to $0.7344, the Kiwi Dollar ended the week flat at $0.6974.

For the Aussie Dollar

Inflation was the main area of focus. The stats were mixed, however, pegging the Aussie Dollar back.

In the 2nd quarter, the annual rate of inflation surged from 1.1% to 3.8%. The trimmed mean rate of inflation picked up from 1.1% to 1.6%, however.

Wholesale inflation also saw a pickup but at a softer pace than anticipated.

Australia’s annual wholesale rate of inflation ticked up from 0.2% to 2.2%. Economists had forecast a rate of 3.5%.

For the Kiwi Dollar

It was a busier week, with trade and consumer and business confidence in focus.

Trade data disappointed, with the trade surplus narrowing from NZ$498m to NZ$261m in June. The narrowing stemmed from a more marked increase in imports, however, rather than a fall exports, which limited the damage.

Business and consumer confidence figures were also skewed to the negative. The ANZ Business Confidence Index fell from -0.60 to -3.80, with the ANZ Consumer Confidence Index falling from 114 to 113.1.

The week numbers were not enough to sink the Kiwi.

For the Japanese Yen

It was another relatively busy week.

Early in the week, private sector PMIs were in focus. Later in the week industrial production and retail sales also drew attention on Friday.

While prelim private sector PMIs softened slightly in July, industrial production and retail sales impressed.

Industrial production jumped by 6.2% in June, reversing a 6.5% slide from May. More significantly, retail sales increased by 3.1%, reversing a 0.4% decline from May.

The Japanese Yen rose by 0.75% to ¥109.72 against the U.S Dollar. In the week prior, the Yen had fallen by 0.44% to ¥110.550.

Out of China

It was a quiet week on the economic data front. There were no major stats from China for the markets to consider.

In the week ending 30th July, the Chinese Yuan rose by 0.31% to CNY6.4614. In the week prior, the Yuan had ended the week down by 0.03% to CNY6.4813.

The CSI300 and the Hang Seng ended the week down by 4.98% and by 5.46% respectively.

USD/JPY Weekly Price Forecast – Dollar Continues to Chop Back and Forth Against Yen

The US dollar has fallen hard against the Japanese yen during the course of the week to break down below the ¥110 level. Ultimately, this is a market that I think is essentially “stuck” in this general area, and therefore it is not a huge surprise that we are dancing around yet again. At this point, I do not necessarily think that we are going to make a big move in the short term, because we are heading into the month of August when things are typically very quiet. Most large traders will be thinking more about beaches than they will trading charts.

USD/JPY Video 02.08.21

At this point, there is a massive amount of resistance above where the ¥112 level has pushed this market back down every time, we have tried to approach that level over the last several years. Ultimately, this is a market that I think will continue to see a lot of noise in that area so therefore I think we break out. To the downside, I see the ¥108 level as a support level, and a potential target if we break down.

I anticipate that the next several candlesticks will be back and forth, and therefore it is probably more likely than not to be a scenario where we will be looking towards shorter time frames than anything else, as the range is relatively tight, and is going to be difficult to trade the range with these higher time frames. That being said, it does make for a nice well defined area that you can trade on either the daily or the four hour charts.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Continues to Consolidate Against Yen

The US dollar has rallied a bit during the course of the trading session on Friday as we continue to see a lot of choppy noise in this market. The ¥110 level has been a bit of a magnet for price and is nothing on this chart that suggests it is not going to continue to be so. The 50 day EMA sits just below the ¥110 level, so it is not a huge surprise to see that the market would go looking towards that area. If we can break above the ¥110 level, then the ¥110.75 level is also resistance, and then we have the ¥111.50 level. Keep in mind that once we get towards the highs again, we need to pay close attention to the longer-term charts, because we have so much in the way of resistance going back several months.

USD/JPY Video 02.08.21

The USD/JPY pair has a strong correlation to risk appetite, and therefore you should pay close attention to that as well. The NASDAQ 100 melted down late in the day on Thursday, and that caused a little bit of pressure over here. Nonetheless, I think given enough time we are simply going to grind back and forth as we try to figure out the next move longer term. Breaking down below the ¥109 level could open up further selling, but you should also keep in mind that the 200 day EMA is just under there as well, so it could also offer a little bit of psychological and structural support.

For a look at all of today’s economic events, check out our economic calendar.

A Busy Economic Calendar Puts the EUR, the Loonie, and the Greenback in Focus

Earlier in the Day:

It was a busy quiet start to the day on the economic calendar this morning. The Kiwi Dollar and the Japanese Yen were in action in the early part of the day. Later this morning, the Aussie Dollar will also be in focus.

For the Kiwi Dollar

Consumer confidence and housing sector data were in focus this morning.

In June, building permits rose by 3.8%, reversing a 2.40% slide in May. Economists had forecast a 1.10% decline.

Of greater significance, however, was a modest fall in consumer confidence.

In July, the ANZ Consumer Confidence Index fell from 114.0 to 113.1. Economists had forecast a decline to 113.0.

According to the July survey,

  • A good time to buy a major household item rose 2 points to +24, a fresh post-COVID high.
  • Sentiment towards the finances in a year’s time also improved. A net 23% expect to be better off this time next year, up 1 point.
  • This was in contrast to sentiment towards current financial situations, which fell 6 points to +8%.
  • Views towards the economic outlook were also mixed.
  • Perceptions regarding the next year’s economic outlook fell 5 points to -2%, while the 5-year outlook rose by 2 points to +12%.

The Kiwi Dollar moved from $0.70039 to $0.70162 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.01% to $0.7011.

For the Japanese Yen

Industrial production increased by 6.2% in June, according to prelim figures, reversing most of a 6.5% slide from May. Economists had forecast a 5.1% increase.

According to the Ministry of Economy, Trade and Industry,

  • Industries that mainly contributed to the increase were motor vehicles, production machinery, and electronic parts & devices.
  • Industries that mainly contributed to the decrease were transport equipment (excl. motor vehicles) and ceramics, stone, & clay products.

According to the Ministry of Economy, Trade and Industry, retail sales increased 3.1%, reversing a 0.4% decline from May. Economists had forecast a 3.6% slide.

The Japanese Yen moved from ¥109.416 to ¥109.402 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.05% to ¥109.420 against the U.S Dollar.

For the Aussie Dollar

Wholesale inflation and private sector credit figures will draw interest.

On the inflation front, the annual wholesale rate of inflation is forecast to accelerate from 0.2% to 3.5%.

Quarter-on-quarter, economists have forecast for the producer price index to rise by 2.1%, following a 0.4% increase in the 1st quarter.

At the time of writing, the Aussie Dollar was flat at $0.7396.

The Day Ahead

For the EUR

It’s a particularly busy day ahead on the economic data front, with the 2nd quarter GDP numbers, consumer spending, and inflation in focus.

French, German, and Eurozone 1st estimate GDP numbers for the 2nd quarter will be the key stats of the day, however.

At the time of writing, the EUR was up by 0.03% to $1.1891.

For the Pound

It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

The lack of stats leaves the IMF’s growth forecasts for the UK, delivered earlier in the week, to continue to resonate.

At the time of writing, the Pound was up by 0.05% to $1.3966.

Across the Pond

It’s a busy day ahead on the economic calendar.

Personal spending and inflation figures for June together with finalized consumer sentiment figures for July will be in focus.

Barring any marked revisions to prelim consumer sentiment figures, expect the personal spending and inflation figures to be key.

Following the FED’s policy decision on Wednesday, any FOMC member chatter will also need monitoring.

On Thursday, the U.S Dollar Spot Index ended the day down by 0.50% to 91.864.

For the Loonie

It’s also a busy day on the economic calendar. Wholesale inflation, RMPI, and GDP numbers will be in focus.

With a lack of stats through much of the week, expect Loonie sensitivity to today’s numbers.

Away from the economic calendar, crude oil prices and market risk sentiment will also influence.

At the time of writing, the Loonie was down by 0.01% to C$1.2449 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Sits Just Below ¥110 Yet Again

The US dollar has fallen a bit against the Japanese yen during the trading session on Thursday, but as you can see, we continue to levitate right around the ¥110 level. The 50 day EMA is also sitting in the same general vicinity, and of course that will cause quite a bit of attention to be paid to this general vicinity as well. Looking at this chart, it seems as if the market is going to continue to be very volatile and choppy.

USD/JPY Video 30.07.21

Underneath, the ¥109 level should offer significant support, but even if we break down below there, it is possible that the 200 day EMA also comes into the picture as well. Keep in mind that the 200 day EMA is widely followed by longer-term traders, so that of course is something that you have to pay attention to. On the other hand, to the upside if we can clear the ¥110.75 level, it is possible we could challenge the recent highs again, but keep in mind that there is a significant amount of resistance above there that goes back several months, if not years.

I think at the very least you should look at this market as one that is going to be choppy and probably somewhat directionless. I think if you are range bound trader you can certainly play these levels but beyond that you are going to have a hard time trading this market for anything more than the occasional bounce around. Ultimately, you could also use this as an indicator as to where the Japanese yen could be going against multiple other currencies.

For a look at all of today’s economic events, check out our economic calendar.

Chinese Officials Calm Markets

Led by a 3% recovery in the Hang Seng, the large equity markets in the Asia Pacific region advanced after the MSCI benchmark recorded the lows for the year yesterday. Europe’s Dow Jones Stoxx 600 is posting modest gains that were sufficient to lift the benchmark to new record highs. US equity futures are firm. US and European 10-year yields are little changed. The US is firm around 1.26%. European yields are also 1-2 bp higher. The biggest reaction in the capital markets is the setback in the dollar, which is softer against nearly all currencies through the European morning.

Among the majors, the New Zealand and Canadian dollars and the Norwegian krone are the strongest. The yen and Swiss franc are the laggards. Among emerging market currencies, the South African rand and Hungarian forint are the strongest. The JP Morgan Emerging Market Currency Index extended yesterday’s gains and is poised for its best two days this month.

Meanwhile, the decline in real yields and a weaker dollar appear to be helping lift gold above its 200-day moving average near $1821. Falling oil inventories in the US are helping lift crude prices. The September WTI contract is up by more than 1% for the second day as prices push above $73 a barrel. After falling on Tuesday, the CRB rose yesterday, its sixth gain in the past seven sessions.

Asia Pacific

Chinese officials moved to calm markets. They did so by the regulators meeting with banks and trying to isolate the crackdown on private education while signaling that IPOs in the US are not banned. State funds may have been deployed to support equities. The PBOC provided additional liquidity. The CNY30 bln (~$4.6 bln) via seven-day repo was the largest such operation this month. Even if Chinese officials succeed in stabilizing the market, the damage to sentiment and confidence among foreign investors will take some time to heal.

First, outside of some general narrative, it is not clear Beijing’s end game. Second, what appears to be capriciousness and clumsiness did not just begin in recent days but is part of a sequence of events that goes back to the intended Ant IPO last year. Third, the opaqueness and activist state approach does not attract foreign investment. Fourth, these recent events show why integrating China into the world’s capital markets is a gradual process that is not simply moving in one direction. The main challenge is not technology, which means that a digital yuan may not be the game-changer that some have suggested.

After buying a record among Japanese bonds in the week through July 16 (JPY2.57 trillion), foreign investors pared their holdings last week by JPY223 bln. The most interesting development last week with Japanese portfolio flows was the continued divestment of foreign bonds. Japanese investors sold JPY1.09 trillion of foreign bonds. It was the fourth liquidation in the past five weeks. Indeed, the average weekly sales over this run have been JPY544 bln, the most in a five-week period since March as the fiscal year was drawing to a close.

The dollar is hovering near this week’s lows against the yen set on Tuesday near JPY109.60. There is little support below there until last week’s low closer to JPY109. There is an option for about $380 mln at JPY109.30 that expires today. On the upside, the greenback has not been able to poke above JPY110.00 today. The Australian dollar is bid, and it is straddling the $0.7400 are near midday in Europe. It has not closed above $0.7400 since July 15.

It appears to be absorbing offers that may be related to the A$1.1 bln in options expiring today between $0.7385 and $0.7400. The $0.7425 area holds the 20-day moving average, and the Aussie has not closed above it since mid-June. The dollar had broken out of the recent range against the Chinese yuan and reached its best level in three months on Tuesday (~CNY6.5125). It has since surrendered the gains and move back to the lower end of the previous trading range (~CNY6.45). It is on track for its biggest two-day drop against the yuan in six months. The dollar’s reference rate was set at CNY6.4942, nearly spot-on the median projection (CNY6.4944) in the Bloomberg survey.

Europe

Germany reported a larger than expected decline in unemployment and what appears to be an upside surprise on inflation. The unemployment queues fell by an impressive 91k in July after a 39k decline in June. It was the largest drop since late 2006. The median forecast called for a 29k decline. The unemployment rate fell to 5.7% from 5.9%. It was at 5% before the pandemic struck.

The German states have reported their CPI figures, and the national figures will be out shortly. The states reported a monthly rise of 0.8%-1.0%, which poses an upside risk to the median forecast expected a 0.6% rise in the national calculation, which would lift the year-over-year rate to 3.2% from 2.3%. The EU harmonized measure was expected to rise by 0.4% for a 2.9% year-over-year pace (up from 2.1% in June).

Spain, the other large EMU country reporting unemployment and inflation figures today. The Q2 unemployment rate eased even if not as much as expected, falling to 15.26% from nearly 16% in Q1. The EU harmonized inflation measure fell 1.2% on the month, which due to the base effect saw the year-over-year rate rose to 2.9% from 2.5%.

Tomorrow is a big day of releases for the eurozone. It reports the June unemployment rate (seen steady at 7.9%, though the risk is on the downside), CPI (seen at 2% but the risk is on the upside), and the first estimate for Q2 GDP ( a 1.5% quarterly gain, which would be the first expansion in three quarters and only the second quarterly expansion since Q3 19 (it was stagnant in Q4 19).

The euro is extending its rally for the fourth consecutive session. It has forged a base around the $1.1750-$1.1760 area and tested it at the start of the week. Today it is pushing against $1.1880, a three-week high. It closed above the 20-day moving average yesterday for the first time since June 7, and the five-day moving average is crossing above the 20-day moving average for the first time since then as well. It has not traded above $1.19 this month, and there is an 800 mln euro option struck there that expires today. Sterling is also advancing for the fourth consecutive session.

It settled last week slightly below $1.3750 and reached $1.3970 today, its highest level since June 23. Recall that sterling peaking on June 1 is near $1.4250. It is moving above the (50%) retracement level (~$1.3910) today, and the next retracement (61.8%) is just shy of $1.40.

America

There are two main takeaways from yesterday’s FOMC statement and press conference. First, the Fed is still on track to make a formal tapering announcement in a couple of months. The actual tapering could begin before year-end, depending on the economy. Powell seemed relatively calm about the prospects that the new Delta variant will cause a major economic disruption. The Jackson Hole-September FOMC meeting timeframe still seems reasonable, especially if the upcoming employment data is as strong as anticipated, and there are several forecasts for non-farm payrolls to rise by a million when announced at the end of next week. Second, the Fed continues to argue that elevated price pressure is temporary.

Powell has argued that a relatively small basket of goods in the CPI basket accounts for the prices. We have noted that only about a third of the components are rising faster than 2%. Powell pointed to cars (new, used, and rental), airfare, and hospitality as significant contributors. The Fed Chair continued to push back against linking house price increases to its MBS purchases and seemed to suggest early tapering off those purchases did not have wide support. The minutes will shed light on this debate.

More than a month after President Biden said a deal was struck, the Senate appears to be on the verge of approving a bipartisan physical infrastructure bill. It will be around $550 bln in new spending, and almost another $500 bln is anticipated in federal money for highways that are part of the regular cycle. It will be partly paid for by reallocated unspent covid relief funds and tapping the Strategic Oil Reserves and a few other more gimmicky measures like counting revenue for future growth and boosting the reporting for crypto trades to capture more tax revenues.

The US reports its preliminary estimate for Q2 GDP. The median forecast in Bloomberg’s survey calls for an 8.5% annualized pace after 6.4% in Q1. Personal consumption is expected to have risen by double digits for the second consecutive quarter. The GDP deflator is projected to rise to 5.4% from 4.3%. We suspect the US economic growth is peaking, and the slowing will be gradual, but by H2 22, the sub-3% pace will return. Separately, the US reported weekly jobless claims. They unexpectedly rose by 50k in the previous week, which was the second increase in three weeks and the first back above the 400k-mark since mid-June. Unperturbed, economists in the Bloomberg survey are looking for 385k claims last week.

The US dollar is breaking down against the Canadian dollar. It is convincingly falling through the 20-day moving average (~CAD1.2525) for the first time since mid-June. The greenback is trading near two and a half week lows against the Canadian dollar to test CAD1.2450. Recall it peaked near CAD1.28 on July 19. The next target is near CAD1.24, the halfway mark of the US dollar’s recovery from the five-year low set on June 1 near CAD1.20.

The Mexican peso shrugged off Moody’s downgrade of Pemex deeper below investment grade (Ba3 and retained a negative outlook). Of the main rating agencies, only S&P sees Pemex as an investment-grade risk. The dollar has approached MXN19.85 to take out last week’s low. The next area of support is seen near MXN19.80. It should be capped in front of MXN19.97.

This article was written by Marc Chandler, MarctoMarket.

USD/JPY Fundamental Daily Forecast – Weak after Fed Pushes Potential Tapering Decision into Late September

The Dollar/Yen is trading lower on Thursday after the Federal Reserve failed to strike the hawkish cord that the markets had expected in its monetary policy statement released on Wednesday and Fed Chair Jerome Powell reiterated the Fed was not ready to think about raising interest rates.

At 07:32 GMT, the USD/JPY is trading 109.813, down 0.097 or -0.09%.

The USD/JPY started to weaken on Wednesday after the Federal Reserve gave no clue about when it might start reducing its purchases of government bonds, even as it said the economic recovery is on track.

Even though investors didn’t think the Fed would make any major announcements at this meeting, I don’t think they expected policymakers to be this quiet about their tapering plans. This now leaves investors with essentially little guidance from the Fed until its next policy meeting on September 21-22.

The Fed said after its latest policy meeting ended on Wednesday that the economy has been strengthening despite a rise in coronavirus infections, and that accelerating inflation remained the result of “transitory factors.” The Fed remained upbeat and flagged ongoing talks around the eventual withdrawal of monetary policy support.

In a news conference following the release of the statement, Fed Chair Jerome Powell said the U.S. job market still had “some ground to cover” before it would be time to pull back from the economic support the U.S. central bank put in place in the spring of 2020 to battle the coronavirus pandemic’s economic shocks.

The Fed’s policy statement, issued after the end of a two-day policy meeting, reflected that confidence as the central bank continues debating how to wind down its bond purchases.

There appeared to be progress in that discussion, though no clear timetable for reducing the bond purchases. Powell said there was “very little support” for cutting the $40 billion in monthly purchases of mortgage-backed securities “earlier” than the $80 billion in Treasuries, and that once the progress begins “we will taper them at the same time.”

Daily Forecast

Although it is not being reflected in today’s price action, the upbeat tone of the Fed’s policy statement could mean the Fed will announce the start of tapering at its September 21-22 meeting.

Since the labor market seems to be a major concern, the Fed will have two monthly Non-Farm Payrolls reports under their belt at that time. Furthermore, it will also have two monthly consumer inflation reports. So there will be plenty of data available to make the call on tapering.

If there is an early decision, it could be made at the Jackson Hole Central Bankers’ Symposium August 26-28.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from the Eurozone and the U.S Put the EUR and the Dollar in the Spotlight

Earlier in the Day:

It was another relatively quiet start to the day on the economic calendar this morning. The Kiwi Dollar was in action in the early part of the day.

For the Kiwi Dollar

Business confidence was in focus this morning.

In July, the ANZ Business Confidence Index fell from -0.6 to -3.8%. Economists had forecast an increased to 1.2%.

According to the latest ANZ Report,

  • While business confidence was down, firms’ own activity rose by 5 points to +32%.
  • Investment intentions increased by 7 points to 25.5%, while employment intentions eased by 1 point.
  • Cost expectations rose by 5 points to a net 86.2%. A net 62.8% of respondents intend to raise their prices, up 6 points. General inflation expectations rose by 19 bps to 2.41%.
  • Profit expectations increased by 2 points to 5.8%, however.
  • Export intentions rose by a modest 1 point to 13.4%.

The Kiwi Dollar moved from $0.69584 to $0.69545 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.07% to $0.6954.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥109.730 against the U.S Dollar, while the Aussie Dollar was down by 0.15% to $0.7365.

The Day Ahead

For the EUR

It’s a relatively busy day ahead on the economic data front, with the German economy back in the spotlight.

Unemployment and inflation figures will be in focus later today.  Expect plenty of interest in the numbers, with market sensitivity to inflation lingering despite the ECB’s latest shift in its price objective.

At the time of writing, the EUR was up by 0.03% to $1.1848.

For the Pound

It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

At the time of writing, the Pound was up by 0.06% to $1.3911.

Across the Pond

It’s a busy day ahead on the economic calendar.

1st estimate GDP numbers for the 2nd quarter and weekly jobless claims figures will be in focus later today.

We can expect plenty of interest in today’s numbers. Expect any sharp increase in jobless claims to overshadow positive GDP numbers, however.

At the time of writing, the U.S Dollar Spot Index was down by 0.09% to 92.235.

For the Loonie

It’s a quiet day on the economic calendar, with no material stats from Canada to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.05% to C$1.2522 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Forex Technical Analysis – Trapped Between Retracement Zones with Reaction to 109.828 Setting the Tone

The Dollar/Yen traded higher on Wednesday following a mixed message from Federal Reserve officials.

The first move was to the upside after the Federal Reserve’s monetary policy statement said the U.S. economic recovery remains on track despite a rise in coronavirus infections. This news sent Treasury yields higher while making the U.S. Dollar a more attractive investment.

The intraday rally was short-lived, however, after Fed Chair Powell said in a news conference shortly after the release of the statement that the U.S. job market still had “some ground to cover” before it would be time to pull back from the economic support the U.S central bank put in place in the spring of 2020 to battle the coronavirus pandemic’s economic shocks.

At 21:00 GMT, the USD/JPY is trading 109.911.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher. A trade through 109.065 will signal a resumption of the downtrend. A move through 111.659 will change the main trend to up.

The minor trend is up. This is helping to boost momentum. A trade through the minor top at 110.590 will indicate the buying is getting stronger.

The minor range is 109.065 to 110.590. Its 50% level or pivot is 109.828. This level acted like support on Wednesday.

The main retracement zone support is 109.569 to 109.076. This zone stopped the selling at 109.065 on July 19.

The short-term range is 111.659 to 109.065. Its retracement zone is resistance. This zone stopped the buying at 110.590 on July 23.

So essentially, the market is trading inside a pair of retracement zones, which tends to indicate a neutral tone.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY early Thursday is likely to be determined by trader reaction to the 50% level at 109.828.

Bullish Scenario

A sustained move over 109.828 will indicate the presence of buyers. If this move can start generating some upside momentum, we could see a gradual move back into 110.362, followed by 110.590 and 110.668. The latter is the true trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 109.828 will signal the presence of sellers. This could lead to a quick test of 109.569. This is a potential trigger point for an acceleration into the support cluster at 109.076 to 109.065.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Continues to Hover Around ¥110

The US dollar has rallied a bit during the course of the trading session on Wednesday to reach towards the ¥110 level yet again. The 50 day EMA is sitting right here as well, so it makes a certain amount of sense that we are hovering in this area. Because of this, I believe that the market is going to continue to chop around, and I think that if you are looking for some type of definitive move, you probably will not get it after the announcement. I think we are going to continue to hang about this area, perhaps in a manner best described as “listless.”

USD/JPY Video 29.07.21

Keep in mind that it is also the dead of summer and therefore we probably have some quiet days ahead of us, and you should also keep in mind that the ¥111 level above is the beginning of significant resistance that extends all the way to the ¥112 level based upon the longer-term chart. Because of this, I think it is going to continue to be difficult to take off to the upside, and therefore I think you have to keep in mind that there might be a little bit of a chance that we break down.

If we break down, I believe that we could go looking towards the 200 day EMA. After that, I think that the market could go to the ¥107.50 level. All things been equal, I am using this chart more or less as a secondary indicator as to what we should be doing with the Japanese yen overall. All things been equal, yen peers do tend to move in the same general direction.

For a look at all of today’s economic events, check out our economic calendar.

Fed Day

The China-inspired losses saw the MSCI Asia Pacific Index fall to new lows for the year today, though Hong Kong’s Hang Seng posted a 1.3% gain. Europe’s Dow Jones Stoxx 600 is posting the first gain of the week, led by information technology, real estate, and consumer discretionary. Despite strong bank earnings, financials are matching the market, not outperforming it. US futures are oscillating around little changed levels.

The US 10-year benchmark yield is firm at 1.25%, while European yields are mostly slightly softer but sufficient to take German, French, Dutch, and Greek yields to new 3-4 month lows. The Antipodean currencies and yen are the heaviest against the US dollar, with the Canadian dollar the only major currency gaining on the greenback through the European morning. Emerging market currencies are mixed, leaving the JP Morgan EM FX index little changed.

The Chinese yuan gained for the first time in five sessions. API estimated a 4.7 mln barrel drop in US oil stocks and a large (6.2 mln barrel) drawdown in gasoline inventories, which, if confirmed, would be the largest since March. September WTI is around 1% higher today. Gold continues to move broadly sideways and is straddling the $1800-level today.

Iron ore and steel rebar futures fell in Shanghai, while copper is recovering from yesterday’s decline, which snapped a five-day advance. September lumber dropped 6.7% yesterday to bring this week’s decline to about 8.3% after jumping 18% last week on Canada’s wildfires. The CRB Index fell 0.6% yesterday to end is five-day, 6.8% advance.

Asia Pacific

Investors are continuing to try to make sense of Beijing’s aggressive moves that appear to be a broad offensive that can only result in a slowing if not reversing of past efforts to integrate into global capital markets. The ultimate goal is not clear. Beijing had appeared to be willing to use the capital inflows to ease restrictions on capital outflows. Some even speculated that this would gradually allow the yuan to be convertible.

Although we disagreed, many observers see that introducing the digital yuan as early as next year’s Olympics would challenge the US dollar’s role. The recent actions appear to deal a blow to such speculation. Lastly, there is some thought that the PBOC could ease policy again (following the recent cut in reserve requirements) to lend support to the stock market, if needed.

Australia’s Q2 CPI came in slightly above forecasts with a 0.8% rise after 0.6% in Q1. The year-over-year pace jumped to 3.8% from 1.1%. The underlying measures were as expected, with a 1.6% year rise (from 1.1%) for the trimmed mean and a 1.7% (from 1.3%) weighted median. Still, the data is unlikely to stand in the way of the RBA announcing increased bond purchases at next week’s meeting (August 3). The lockdown in Sydney and social restrictions elsewhere are threatening the economy.

Keep an eye on Japanese weekly portfolio flows that are released first thing tomorrow in Tokyo. In the previous week, ending July 9, foreigners appear to have bought a recorded amount of Japanese bonds (JPY2.57 trillion or ~$23.3 bln). To put the figure in perspective, the previous four-week average was around JPY546 bln. For their part, Japanese investors have sold foreign bonds for the past three weeks, and the average weekly sale of JPY804 bln is the most since early March. On the other hand, equity portfolio flows have been minor.

The dollar is consolidating in about a quarter of a yen below JPY110.00 so far today. The greenback has been recovering since dipping briefly below JPY109.60 near midday in NY yesterday. A move above JPY110.00 could see JPY110.20, but the subdued session will likely continue until the FOMC statement. The Australian dollar is stagnant. It remains within the range set on Monday (`$0.7330-$0.7390). There is an option for A$710 mln at $0.7390 that expires today and another for about A$515 mln at $0.7400 that expires tomorrow.

The dollar spiked to CNY6.5125 yesterday, its highest level in three months, and broke out of the CNY6.45-CNY6.50 month-old range. However, it was pushed back into the range today as the yuan rose for the first time in five sessions. The PBOC set the dollar’s reference rate at CNY6.4929, slightly lower than the median expectation picked up in Bloomberg’s forecast (CNY6.4935).

Europe

The UK and the EU are still at odds over the Northern Ireland Protocol. However, the EC moved to de-escalate the situation. Rather than push forward with its threat of imminent legal action as the end of the month should mark a new phase of enforcement, it appears to have granted a grace period of the summer to find an amicable solution.

Germany’s August GfK consumer confidence survey was unexpectedly weak. Rather than rising to 1.0 as economists projected, it remained at -0.3. The disastrous floods seem to be the main culprit. Tomorrow, Germany reports July CPI figures and employment data. The EU harmonized measure of CPI is expected to rise to 2.9% from 2.1% in June. Unemployment may have ticked down to 5.8% from 5.9%. It was at 5.0% steadily in H2 19.

The week’s highlight for the eurozone comes on Friday with the aggregate CPI (there seems to be upside risks to the 2.0% median forecast in Bloomberg’s survey) and the first look at Q2 GDP.

In the UK, Nationwide reported its house price index fell 0.5% in July. It is the first decline since March and the largest fall since last June. The year-over-year rate moderated to 10.5% from 13.4% in June. A tax break is winding down. On July 1, the stamp-duty threshold on new purchases was halved to GBP250k, adding GBP12.5k to the average home bought in London. Starting October 1, the threshold will return to GBP125k.

The euro is trading quietly in the upper end of yesterday’s range that saw it reach $1.1840, its highest level since mid-July. It has held above $1.18 so far today, and if sustained, will be the first session since July 12 that it has not traded with a $1.17-handle. There is a billion-euro option at $1.18 that expires today and another at $1.1820, and a third at $1.1850.

Tomorrow, there is a 1.36 bln euro option struck at $1.1850 that will also expire. It suggests that the area will likely be sticky. Sterling is firm but holding below $1.39 that it approached yesterday. An option for almost GBP400 mln is struck at $1.3925 that expires today. Tomorrow there is an option for almost GBP410 mln at $1.3900 that also will be cut. Initial support is seen near $1.3860 and then $1.3820.

America

Following Monday’s unexpected decline in June’s new home sales (-6.6%) and a downward revision to the May series (-7.8% rather than -5.9%), the US reported weaker than expected June durable goods orders, mitigated in part by the upward revisions to the May data. Separately, house price increases accelerated in May.

Today’s reports of the advance goods trade balance and retail and wholesale inventories will give economists the last opportunity to adjust the Q2 GDP forecasts ahead of tomorrow’s report. The median forecast in Bloomberg’s survey sees 8.5% annualized growth in Q2 after a 6.4% pace in Q1. The price deflator is expected to accelerate to 5.4% from 4.3%.

The outcome of the FOMC meeting is center stage today. No change in policy is expected, though some members seem to want to adjust the asset purchases immediately with special attention to the mortgage-backed securities. This seems unlikely. However, Powell is unlikely to push against expectations that an announcement could be made at the next FOMC meeting in September.

By pledging to give the market a clear advance warning, it would seem to need to say something relatively soon to keep its options open for an adjustment in the pace and possibly the composition of its purchase by the end of the year. Powell could deter dissents by striking a compromise by replacing the agency bonds purchases with more Treasuries, but this too seems unlikely. The FOMC statement is unlikely to deviate much from the last one, and the Fed is unlikely to see the rising Delta covid cases as substantially impacting its economic outlook.

Canada reports June CPI figures. The year-over-year rate is expected to ease (3.2% from 3.6%) for the first time this year. Canada has three core measures, two of which may have also softened (median and trim iterations). At the end of the week, Canada will report May’s monthly GDP. It is expected to have matched April’s 0.3% contraction, but the data seems dated.

Mexico’s June trade surplus was much smaller than expected ($762 mln vs. median Bloomberg survey forecast for $2 bln). Partly, it appears that domestic demand is improving, and this will likely be seen in the Q2 GDP report due at the end of the week. The median forecast anticipated a 1.8% expansion in the quarter after a 0.8% pace in Q1.

The US dollar is encountering selling pressure near CAD1.26 for the fifth consecutive session. Key support is seen near CAD1.2525, though there is an option for almost $390 mln at CAD1.2550 that expires today. Momentum indicators like the MACD and Slow Stochastic are trending lower, and the greenback’s recovery from the multi-year low set on June 1 near CAD1.20 looks over or nearly so.

The US dollar is trading near seven-day lows against the Mexican peso (~MXN19.9330). Chart support is seen in the MXN19.80-MXN19.82 band. Nearby resistance is pegged near MXN20.03.

This article was written by Marc Chandler, MarctoMarket.

Economic Data Puts the EUR in Focus ahead of the FED Policy Decision and Press Conference

Earlier in the Day:

It was a relatively quiet start to the day on the economic calendar this morning. The Aussie Dollar was in action in the early part of the day.

For the Aussie Dollar

Inflation was in focus this morning.

In the 2nd quarter, the annual rate of inflation accelerated from 1.1% to 3.8%. Economists had forecast a pickup to 4.0%.

Quarter-on-quarter, consumer prices rose by 0.8%, falling short of a forecasted 1.0% rise. In the 1st quarter, consumer prices had risen by 0.6%.

According to the ABS,

  • The most significant price rises in the June quarter were automotive fuel (+6.5%) and medical and hospital services (+2.4%).
  • Electricity prices rose by 3.3% as a result of the continued unwinding of the Western Australian Government’s A$600 electricity credit.
  • In the 2nd quarter, the trimmed mean annual rate of inflation picked up from 1.1% to 1.6%.

The Aussie Dollar moved from $0.73726 to $0.73660 upon release of the figures. At the time of writing, the Aussie Dollar up by 0.07% to $0.7367.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.08% to ¥109.870 against the U.S Dollar, while the Kiwi Dollar was up by 0.12% to $0.69640.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. Consumer sentiment figures from Germany will be in focus early in the European session.

With little else for the markets to consider, we can expect EUR sensitivity to the numbers. While economist have forecast for confidence to improve, the Delta variant could test consumer optimism near-term.

At the time of writing, the EUR was up by 0.03% to $1.1820.

For the Pound

It’s another particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

Further demand for the Pound is likely following the IMF’s outlook towards the UK economy.

At the time of writing, the Pound was up by 0.06% to $1.3888.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. Trade data for June will be in focus later in the day. We don’t expect the numbers to have a material impact on the Dollar and the broader markets, however.

The market focus will be on the FED interest rate decision and press conference scheduled for late in the U.S session.

The question will be whether the FED Chair can continue to convince the markets of unwavering policy support.

At the time of writing, the U.S Dollar Spot Index was up by 0.02% to 92.453.

For the Loonie

It’s relatively quiet day on the economic calendar, with inflation figures in focus.

After a quiet start to the week, we will expect the Loonie to be responsive to the numbers.

Ultimately, however, market risk sentiment and crude oil prices will remain the key drivers on the day.

At the time of writing, the Loonie was up by 0.13% to C$1.2586 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Crashes Into 50 Day EMA

The US dollar has broken down a bit during the course of the trading session on Tuesday to reach down towards the 50 day EMA. Looking at this chart, it appears that the market continues to see the area above as a major resistance barrier, especially once you get to the ¥111 level, as it extends all the way to the ¥112 level on longer-term charts. Because of this, the market is likely to continue seeing a lot of resistance above that pushes the pair back down. This will be especially true if we continue to see more of a “risk off” type of attitude, as this pair is sensitive to risk appetite in general.

USD/JPY Video 28.07.21

With that being said, the market is likely to continue seeing choppy volatility, and even if we do break down from here, I do not expect it to be some type of major selloff, just that the 200 day EMA underneath could be targeted. At that point, we would be looking at the ¥108 level, and as a result find plenty of longer-term support. Nonetheless, this is a market that is going to be very noisy and there is probably no way around that.

The candlestick for the day certainly suggests that we could go a bit lower, but it comes down to whether or not see the world feel better about the economic outlook, or if we get more fear. I think you should also take a look at the fact that the structure is starting to break down a bit, so that of course would be rather negative looking, at least from a short-term perspective.

For a look at all of today’s economic events, check out our economic calendar.

China Sends Ripples Across the Markets

Hong Kong shares are bearing the brunt. The Hang Seng has fallen by 10% in the three sessions, including today. The Shanghai Composite is off nearly 5.5% in the same period. A few of the other larger markets in the region, including Japan, South Korea, and Australia, posted small gains. Moody’s affirmation of a stable credit outlook helped lift Philippines’ stocks by 2.4%, the most in a couple of months and recouped most of Monday’s slide.

Europe’s Dow Jones Stoxx 600 is off around 0.5%, led by financials and energy. US futures are trading with a heavier bias. Benchmark bond yields are lower. The 10-year Treasury yield is hovering near 1.25%, off more than three basis points. European yields are 1-2 bp lower. The dollar is bid. The yen continues to be resilient. Emerging market currencies are retreating as an expression of the risk-off mood. The JP Morgan Emerging Market Currency Index is off 02%.

Industrial metals have been knocked back by reports suggesting China is considering new export tariffs on steel. Oil is sidelined, and the September WTI contract is little changed, around $72 a barrel. Gold is not drawing much of a bid. A stronger dollar may offset the lower yields as a consideration. If the yellow metal does not recover, it may close below $1800 for the first time in three weeks.

Asia Pacific

Beijing is fighting a two-front battle. Domestically, the new drive that began last year with the Ant IPO and crackdown on Alibaba has broadened. Stronger regulatory efforts, anti-trust, and IPOs in foreign markets, and now private education companies are killing the proverbial goose that lays the golden egg by underscoring international investors’ concerns about investing in China.

The capital inflows were to create conditions under which Beijing could ease capital outflow restrictions. The other front of the battle is in foreign policy. Yesterday’s high-level meetings with the US appeared to have failed to break new ground. While reports suggest that there is still scope for Biden and Xi to meet in October, with the March and July contentious meetings, the chances of an agreement seem remote.

Reports today suggest China is considering a 10-25% tariff on steel exports starting in Q3 to rein in the sector. This is separate from its regulatory initiatives. This seems more in the containing commodity prices and rationalizing the steel sector. It appeared to have an immediate effect of sending iron ore and steel rebar prices lower. However, nickel, which is needed in the new batteries, proved resilient and is at new multi-year highs. Separately, China reported industrial profits moderated to 20% year-over-year from more than 36% in May.

South Korea reported slightly softer than expected growth in Q2. GDP rose by 0.7% on the quarter after a 1.7% pace in Q1. This is broadly consistent with what had been perceived as a maturing of the Asia economic recovery. The government was quick to reaffirm its expectation for 4% growth this year, indicating that today’s report will have no impact on monetary policy. The central bank meets in late August. The market has fully discounted a 25 hike in the next three months. Separately, South Korea and North Korea agreed to re-establish formal relations, including the hotline.

A record number of covid cases in Tokyo has not offset the flow into the yen today. For the first time in four sessions, the dollar slipped below JPY110.00. Initial support is seen in the JPY109.80 area, but recall last week’s low was slightly above JPY109.00. It appears that the same considerations that weigh on US Treasury yields boost the demand for the yen. Covid cases in Sydney are still rising, and the risk-off is pushing the Australian dollar lower.

It has meet resistance in the last three sessions in front of $0.7400, and expiring options are set at $0.7380 today and $0.7390 tomorrow. On the downside, yesterday’s low near $0.7330 is holding, and a break could see a test last week’s lows (~$0.7290-$0.7300). The nearly 0.25% rise in the dollar against the Chinese yuan is the largest in almost a week and a half.

The greenback spiked to CNY6.5125 earlier, which is the highest level since April. The 200-day moving average is found by CNY6.5170. The greenback has not traded above this moving average since last July. The PBOC set the dollar’s reference rate at CNY6.4734, a bit softer than the median projection in Bloomberg’s survey for CNY6.4741.

Europe

Interest in the eurozone’s money supply figures has waned, perhaps as a result of the ECB’s asset purchases and negative interest loans. June M3 rose 8.3% year-over-year, largely in line with estimates. However, it is the underlying lending figures that draw more interest. Loans to households rose 4% after a 3.9% pace in May, while loans to companies rose 1.9%, matching the previous month’s rise. The economic highlights of the week still lie ahead. At the end of the week, the preliminary July CPI and Q2 GDP will be reported.

We see upside risk to the Bloomberg median forecast for 2.0% CPI. The median forecast calls for a 1.5% increase in the GDP quarter-over-quarter.

Hungary hiked its key rate by 30 bp in June to 0.90%. It is expected to follow up with another 20 bp hike today. The overnight deposit rate has stood at minus 5 bp since March 2019, when it was lifted from -15 bp, where it had been since August 2017. Inflation runs above 5%, the highest in nine years, and the core measure is at 16-year highs. As a result, Hungary may lift the deposit rate out of negative territory today to 10 bp.

The euro is trading inside yesterday’s range (~$1.1765-$1.1815). The 20-day moving average is slightly below $1.1820, and the euro has not traded above it since June 11 and has not closed above it since June 7. Although a base has been carved out in the $1.1750-$1.1760 area, the single currency has not been able to distance itself from it.

A break target the year’s low set at the end of March near $1.1700. Reports of falling covid cases in the UK may have helped spur sterling’s gains yesterday to a six-day high near $1.3835. Recall last week’s low was close to $1.3570. However, the recovery stalled, and sterling is consolidating today, straddling the $1.38 level. A break of the $1.3765 area could signal a move into a support band in the $1.3700-$1.3730 area.

America

The US 10-year TIP yield is at a record low today, near minus 1.14%, which seems incredible given that the US is expected to report Q2 GDP around 8.5% at an annualized clip and a deflator of almost 5.5%. The decline in the real yield yesterday was cited as a key force behind the greenback’s heavier today. Meanwhile, states that have had low vaccination rates are seeing strong spikes in the virus. The latest figures show about 60% of the 18+ cohort have been fully vaccinated, and 69% have been given one of two shots.

That means a little more than 49% of the population is fully vaccinated, which has been fairly stable. Ironically, even as the US secures more vaccines, a sizeable minority does not want it. Meanwhile, efforts to reach a bipartisan deal on infrastructure are still being stymied.

The US reports June durable goods orders today. The headline (~2.1%) will be lifted by aircraft, without which a modest gain (~0.8%) is expected. Shipments of non-defense and non-aircraft goods may have slowed to 0.8% from 1.1%. However, more attention may be on house price reports today. The FHFA reports its monthly house price index. It has been rising by more than 1% a month since last June without exception.

In April, it rose the fastest over this period, posted a 1.8% month-over-month increase. S&P CoreLogic Case Shiller index of house prices in the largest 20-cities and nationwide are expected to have accelerated in May. This comes as the FOMC’s two-day meeting begins, and several officials share our concerns about the optics, if not the impact of the central bank continuing to buy mortgage-backed securities. The Conference Board’s July consumer confidence measure is expected to soften from elevated levels. Lastly, note that Alphabet, Apple, Microsoft, among others, report earnings today.

Canada reports June CPI figures tomorrow, and the year-over-year rate may decline (3.2% from 3.6%) for the first time this year. Mexico reports June’s trade balance. A $2 bln surplus is expected, which would be the largest for Q2. Last year, the monthly trade surplus averaged $2.8 bln a month, up from $446 mln in 2019 and a $1.1 bln deficit in 2018. In the first five months of 2021, the average monthly surplus has fallen to $66.5 mln. Separately, we note that the dispute over measuring domestic content for autos and auto parts under the USMCA has not been resolved.

The US dollar is firm against the Canadian dollar but within the recent range (~CAD1.2525-CAD1.2610). There is an option for $550 mln at CAD1.26 that expires today. The 20-day moving average is near CAD1.2515, and the greenback has not traded below it since mid-June. On the upside, the 200-day moving average is around CAD1.2610. A move above it would target the CAD1.2680 area initially. The greenback is also confined to yesterday’s range against the Mexican peso (`MXN19.99-MXN20.1650). The risk-off mood warns of the risk of a stronger US dollar. Last week’s high was near MXN20.25.

This article was written by Marc Chandler, MarctoMarket.

Economic Data from the U.S to Put the Dollar in the Spotlight

Earlier in the Day:

It was a particularly quiet start to the day on the economic calendar this morning. There were no material stats to provide the markets with direction early in the day.

For the Majors

At the time of writing, the Japanese Yen was up by 0.13% to ¥110.250 against the U.S Dollar, while the Aussie Dollar down by 0.07% to $0.7380. The Kiwi Dollar was down by 0.14% to $0.6994.

The Day Ahead

For the EUR

It’s a particularly quiet day ahead on the economic data front. There are no material stats due out of the Eurozone to provide the EUR with direction.

The lack of stats will leave the EUR in the hands of market risk sentiment on the day, with COVID-19 remaining a key area of focus.

At the time of writing, the EUR was up by 0.01% to $1.1804.

For the Pound

It’s also particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

At the time of writing, the Pound was up by 0.02% to $1.3821.

Across the Pond

It’s a relatively busy day ahead on the economic calendar. Durable and core durable goods and consumer sentiment figures are due out later today.

Expect core durable goods orders and consumer confidence figures to be the key drivers later in the day.

At the time of writing, the U.S Dollar Spot Index was down by 0.04% to 92.6140.

For the Loonie

It’s another quiet day on the economic calendar, with no major stats due out to provide the Loonie with direction.

The lack of stats will continue to leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was up by 0.04% to C$1.2546 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Continues to Power Higher Against Yen

The US dollar has initially pulled back just a bit during the course of the trading session on Monday, but then found enough support at the ¥110 level to turn things around and show signs of life again. Quite frankly, this pair will continue to move right along with risk appetite going forward, so if we get another push higher in a lot of the equity indices, then it is very likely that this pair will rally as well. However, you should keep in mind that the pair does have a significant amount of resistance above at the ¥111 level that extends to the ¥112 level. That is an area that goes back months, and I think it is going to be very difficult to get past that region. In other words, even though it does look like we are going to try to grind higher, I believe that it is very unlikely that this market simply slices right through it.

USD/JPY Video 27.07.21

In other words, this is a market that I think will grind its way higher, but not necessarily break out. After all, that would be changing the overall attitude of the market going back several years, something that I do not know if we are ready to do quite yet. Having said that, it will be interesting to see if that happens whether or not it can stick. If we break down below the ¥109 level, then I think the market probably goes looking towards the 200 day EMA and perhaps even lower than that.

For a look at all of today’s economic events, check out our economic calendar.

Greenback Starts Big Week Softer

Last week’s weakness in the MSCI Asia Pacific Index seemed to be partly driven by Beijing’s crackdown on some tech companies and private sector education companies. The benchmark fell by 1.9% last week and continued to be sold today, led by Hong Kong’s 4%+ drop and Shanghai’s 2.3% decline.

Only Japan of the large bourses posted modest gains after coming back from a two week holiday. However, the Dow Jones Stoxx 600 in Europe rallied 1.5% last week, but its four-day advance is meeting profit-taking today, and it is nursing a 0.35% decline near midday in Europe. US futures are also heavy. Benchmark 10-year yields are heavy. The US Treasury yield is off almost three basis points at 1.25%, ahead of this week’s auctions of $183 ln in coupons and a $28 bln two-year floating-rate notes. It had been down to 1.22% earlier in the session.

The US 10-year real yield has fallen to a new record low of almost -1.13%. European yields began off a couple of basis points softer, with most benchmarks falling to fresh 3-5 month lows but have recovered to see minor increases. Rallies in China and South Korean bonds pushed their 10-year benchmarks to new three-month lows too. The dollar is mostly softer against the major currencies, having seen its earlier gains pared or even reversed.

The Australian dollar and Norweigan krone are the laggards. Several emerging market currencies, including the South African rand and Mexican peso, have recovered from earlier losses. The JP Morgan Emerging Market Currency Index is off for the third consecutive session and has a four-week downtrend in tow. Gold is firm but meeting resistance in the $1810-$1812. Last week, it peaked near $1825. Oil prices appear to be being dragged lower by demand concerns and are snapping a four-day advance.

However, September WTI has trimmed its earlier losses, and near $71.70 is off about 0.5%. Copper is rising for a fifth session. The CRB Index gained 1.9% last week, its seventh advance in the past nine weeks.

Asia Pacific

China expressed outrage at a map used by CNBC of China did not include Taiwan. Some observers note that if a map of the US did not contain Alaska and Hawaii, there would be no protest, but a critical difference is that China’s territorial integrity is questioned. Other observers complained that some areas, like Tibet, were included as part of China. Meanwhile, China’s attempt to be more integrated into global finance, attract foreign capital, which would give it scope to ease restrictions on capital outflows, will likely be dealt a blow by the crackdown on online educational companies.

Some of these companies attracted investment flows from hedge funds, pension funds in some provinces in Canada, and some states pension in the US. Lastly, a massive typhoon hit eastern China, and on top of last week’s floods. This will likely have some negative economic impacts, and China’s Politburo that meets this week may address it. Still, given the recent cut in reserve requirements, an easier policy bias had already emerged.

Japan’s preliminary July PMI shows that Q3 is off to a poor start. The manufacturing PMI slipped to 52.2 from 52.4. It is the lowest in five months. Output and new orders fell to six-month lows. The services PMI fell deeper into contraction mode. The 46.4 reading, down from 48.0, is a new five-month low, but note that the services PMI has not been above the 50 boom/bust level since January 2020. Last July it stood at 45.4. The pandemic was frequently cited as the main culprit. About 23% of Japan’s population is fully vaccinated, which is a little less than half of the level in many large European countries and the US and Canada.

Falling US yields and the risk-off sentiment is dragging the dollar lows against the yen. Initial support is seen near JPY110.00, and an expiring option for $350 mln at JPY109.80 may attract interest. Recall that before the weekend, the dollar settled on the week’s highs just shy of JPY110.60. The Australian dollar’s key upside reversal in the middle of last week off the year’s low (~$0.7290) faltered near $0.7400 in the last two sessions and was sold to nearly $0.7330 today.

There is an option for about A$455 mln at $0.7335 that will be cut today. The dollar edged higher against the Chinese yuan for the third consecutive session. It begins this week with an eight-week advance that goes back to the first week in June. The PBOC set the dollar’s reference rate at CNY6.4763, a little lower than the models in Bloomberg’s survey projected of CNY6.4768.

Europe

The July German IFO survey disappointed but remains at elevated levels. The expectations component deteriorated for the first time in three months, falling to 101.2 from 103.7, the highest level since 2010. The current assessment ticked up to 100.4 from 99.7. Although it missed expectations, it was still the strongest since mid-2019. The overall business climate reading stands at 100.8, down from 101.7 in June. It is the first decline since January.

Last week, the UK announced it would station two naval ships in Asia as part of the attempt to preserve free navigation and check China’s aggressiveness. Today, reports suggest it is looking at ways to remove China’s state-owned nuclear energy company (China General Nuclear Corp) from future projects in the UK. This could put at risk the GBP20 bln power station (in a joint effort with France’s Electicite de France) and the planned development in Essex.

CGN also has a 33% stake in the Hinkley Point facility being constructed in Somerset and is among the UK’s largest construction projects. Recall that the UK will permanently shut five of its eight nuclear plants by 2024.

At the end of last week, the ECB confirmed that the cap on dividends and buybacks for banks will be allowed to expire at the end of September. However, it still urged banks under supervision to be cautious. The UK had made similar moves earlier this month. A little more than a third of the banks in the Euro Stoxx 600 Index report earnings this week. Note that eurozone banks typically pay dividends only once a year. Bank shares are off about 0.6% today.

The euro is firm. It appears to be forging a shelf in the $1.1750-$1.1760 area for the sixth session. It is knocking around $1.1800. Last week’s high, set on July 19, was about $1.1825. There is an expiring option for a little more than 620 mln euros at $1.1830 today. Sterling is firm and has risen a little above last week’s high of $1.3790. A move above $1.3820 would lift the tone. Support is seen around $1.3735.

America

This is a big week in the US with the FOMC meeting and the first look at Q2 GDP on tap. However, there are other important events as well. First, there will likely be a test vote in the Senate on the bipartisan infrastructure initiative. Our concern is that even if the Senate strikes a compromise, the House may prove more difficult. Some want immigration to be included, and others may reject the funding compromise that could be reached in the Senate. Second, Treasury Secretary Yellen acknowledged that the statutory debt limit is back on August 1 and that the various maneuvers can buy for a couple of months.

Recall that in 2011, over a similar dispute, S&P downgraded the US. Among the first places to look for investors to respond may be in the T-bill auctions, though it is not exactly clear when Treasury runs out of room. Third, large tech companies, including Apple, Alphabet, Facebook, Microsoft, Qualcomm, and Amazon, report earnings this week. So do Telsa, Ford, Exxon, Chevron.

The US begins the week with June new homes sales, which are expected to bounce back after falling for two months. The limited supply seems to be the major culprit. The July Dallas Fed manufacturing survey is due, and it is expected to have edged higher. It, too, has slipped lower for the previous two months. Canada has a light economic diary until the middle of the week, when the June CPI will be reported. The year-over-year rate (3.6% in May) could soften for time this year, largely as a result of the base effect.

Two of the three core measures are also expected to have eased. At the end of the week, Canada reports May GDP, which is likely to have contracted for the second month. That said, Canada appears to be emerging from the soft patch. Mexico also has a busy week. Today’s unemployment data is followed by the trade balance tomorrow and Q2 GDP at the end of the week. According to the median forecast in Bloomberg’s survey, the economy is expected to have expanded by 1.8% on the quarter, after a 0.8% expansion in Q1.

The US dollar peaked against the Canadian dollar last Monday near CAD1.28. It was sold to around CAD1.2530 before consolidating ahead of the weekend. A break of CAD1.25 would strengthen the conviction that a high is in place. It corresponds to both the 20-day moving average, which the greenback has not closed below since early June, and the (38.2%) retracement objective of the uptrend since then.

A convincing break could signal a test on the CAD 1.24 area. The US dollar flirted with the 200-day moving average against the Mexican peso last week (~MXN20.21) but failed to close above it and tested MXN20.00 before the weekend. It is little changed on the day in Europe, having already tested the MXN20.1650 area. A break of MXN19.97 could spur a decline toward MXN19.82.

This article was written by Marc Chandler, MarctoMarket.

Economic Data from Germany Puts the EUR in Focus

Earlier in the Day:

It was a relatively busy start to the day on the economic calendar this morning. The Japanese Yen and the Kiwi Dollar were in action in the early hours.

For the Kiwi Dollar

Trade data was in the spotlight this morning.

In June, New Zealand’s trade surplus narrowed from NZ$498m to NZ$261m. Economists had forecast a widening to NZ$500m.

According to NZ Stats,

  • In June, the value of all goods exported increased NZ$871m (17%) from June 2020 to NZ$6.0bn.
    • Exports of logs and wood reached a new high, up NZ$105m (23%).
    • Beef exports together with the exports of milk powder, butter, and cheese also contributed to the rise in exports.
    • China received the largest share of exports, accounting for 32% of total exports in June.
  • Imports increased NZ$1.1bn (24%) to NZ$5.70bn in June compared with June 2020.
    • A 166% surge in the imports of vehicles, parts, and accessories drove imports northwards.

The Kiwi Dollar moved from $0.69785 to $0.69794 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.04% to $0.69710.

For the Japanese Yen

Private sector PMIs for July were in focus this morning.

The Manufacturing PMI fell from 52.4 to 52.2, with the services PMI declining from 47.2 to 46.4. Economists had forecast PMIs of 51.9 and 47.0 respectively.

According to the July survey,

  • The composite fell from 48.9 to 47.7, with output falling at the quickest pace in 6-months.
  • Firms attributed the decline to a continued rise in new COVID-19 cases and state of emergency measures.
  • New orders declined at a strong pace, driven by a stronger decline across the services sector.
  • Employment levels continued to rise across the private, albeit at a slower pace, while the services sector saw employment levels fall.
  • Firms reported a more marked pickup in output prices, driven by the manufacturing sector.
  • Optimism weakened in July, with both sectors becoming less optimistic.

The Japanese Yen moved from ¥110.544 to ¥110.532 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.14% to ¥110.400 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was down by 0.11% to $0.7356.

The Day Ahead

For the EUR

It’s a relatively quiet day ahead on the economic data front. German business sentiment figures for July are due out later this morning.

With little else for the markets to consider, expect EUR sensitivity to the numbers.

At the time of writing, the EUR was up by 0.02% to $1.1773.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no material stats to provide the Pound with direction.

On the monetary policy front, BoE member Vlieghe is scheduled to speak. Any forward guidance on policy or views on the economic outlook would influence.

Away from the economic calendar, however, COVID-19 news updates will need monitoring.

At the time of writing, the Pound was up by 0.06% to $1.3756.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. New home sales figures for June are due out later today.

We don’t expect too much influence from the numbers, as the markets look ahead to Wednesday’s policy decision.

At the time of writing, the U.S Dollar Spot Index was up by 0.02% to 92.9260.

For the Loonie

It’s a quiet start to the week, with no major stats due out to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of market risk sentiment on the day.

At the time of writing, the Loonie was down by 0.11% to C$1.2578 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Forex Technical Analysis – Early Strength Over 110.668, Weakness Under 110.362

The Dollar/Yen posted a solid gain on Friday on the back for firmer Treasury yields and increased appetite for riskier assets. The catalyst behind the strong performance was strong Wall Street earnings. This news helped investors regain some of the confidence lost to earlier in the week worries the Delta variant of the coronavirus could derail the global economic recovery.

On Friday, the USD/JPY settled at 110.550, up 0.371 or +0.34%.

U.S. equities rose Friday with the major averages hitting new records as they overcame concerns about economic growth from earlier in the week. Additionally, the 10-year Treasury yield bounced on Friday to 1.281%, easing concerns about the economy that the bond market triggered on Monday. The 10-year yield fell to a 5-month low of 1.13% earlier this week.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has shifted to the upside. A trade through 111.659 will change the main trend to up. A move through 109.065 will signal a resumption of the downtrend.

The price action is essentially mirroring the movement in Treasury yields so the chart pattern suggest we’re going to have to see yields at their highest level since July 2 to change the main trend to up.

The minor trend is up. It turned up last Wednesday. This shifted momentum to the upside.

The short-term range is 111.659 to 109.065. The USD/JPY is currently testing its retracement zone at 110.362 to 110.668. Trader reaction to this zone will determine the direction of the Forex pair this week.

On the downside, the nearest support targets are a pair of 50% levels at 109.828 and 109.569.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY early Monday is likely to be determined by trader reaction to the short-term 50% level at 110.362.

Bullish Scenario

A sustained move over 110.362 will indicate the presence of buyers. The first upside targets are a Fibonacci level at 110.668, followed closely by a minor top at 110.698. This level is also the trigger point for an acceleration to the upside with 111.659 to 111.715 the primary targets.

Bearish Scenario

A sustained move under 110.362 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the minor pivot at 109.828. Look for buyers on the first test of this level. If it fails then look for the selling to reach 109.569.

For a look at all of today’s economic events, check out our economic calendar.