Mid-Day Report: Forex Markets Stuck in Range Despite Improvement in Sentiments

The forex markets remained steadily in range today so far and had little reactions to the rebound in stock markets. Global equities are broadly higher as tensions in Ukraine eased. European indices are generally higher with FTSE up 0.78%, DAX up 1.6% and CAC up 0.86% at the time of writing. US futures also point to higher open. Yen is mildly lower as risk aversion eased but loss is so far limited. Markets also had little reactions to the economic data released today. Canadian housing starts rose to 200k in July versus expectation of 194k. Swiss retail sales rose strongly by 3.4% yoy in June versus expectation of 0.7% yoy. Japan tertiary industry index dropped -0.1% mom in June, Money stock M2CD rose 3.0% yoy in July, consumer confidence rose to 41.5 in July, machine tool orders rose 37.7% yoy in July.

In its monthly report, BoJ said that “China’s economy is set to sustain stable growth but excess slack in its manufacturing sector, which has a big effect on Japan’s economy, remains a problem.” Meanwhile, other emerging nations ” may also see growth lacking momentum for a prolonged period.” The outlook for exports was somewhat downgraded as BoJ said they would “head for a moderate recovery” comparing to last months’ “recovering moderately”. Also released from Japan, tertiary industry index dropped -0.1% mom in June, Money stock M2CD rose 3.0% yoy in July, consumer confidence rose to 41.5 in July, machine tool orders rose 37.7% yoy in July.

The coming week is filled with macroeconomic updates. More in The Week Ahead – Asia To Focus On Chinese Macro, UK’s Inflation Report To Reduce Slack. In Asia, China’s July industrial production, retail sales and fixed asset investment would be due Wednesday. The government would also release report on money and credit growth during the week. In Japan, the preliminary GDP growth for 2Q14 would be due on Wednesday. The market is expecting a -7.1% saar contraction on payback for spending undertaken in advance of the consumption tax hike. The BOJ minutes for the July meeting would be due on the same day.

In European, UK’s quarterly inflation for August would unlikely show any changes to the growth forecasts. However, policymakers may make some downward revisions to the short-term inflation. the key indicator affecting the BOE’s monetary outlook would be the MPC’s assessment of the amount of spare capacity left in the economy. In the Eurozone, GDP growth and inflation data are under the spotlight. Inflation data from Germany, France and Spain will confirm the Eurozone’s final CPI for July (due on Thursday). Meanwhile, the preliminary readings of German and French GDP growth, due on Thursday, would be largely flat in the second quarter.

In the US, the July retail sales due Wednesday would show further advance in spending while initial jobless claims due Thursday might show the reading to rise to 307K in the week ended August 9 from 289K a week ago. New York Fed’s Dudley and the Boston Fed’s Rosengren would be speaking during the week.

Daily Pivots: (S1) 1.6748; (P) 1.6791; (R1) 1.6815; More

Intraday bias in GBP/USD remains on the downside for 1.6692 key support level. A medium term top was in place at 1.7190 and the larger trend is possibly resuming. Break of 1.6692 will confirm this bearish case. On the upside, above 1.6888 will indicate short term bottoming and bring lengthier consolidation before staging another decline.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. Based on unconvincing medium term momentum, we’d expect strong resistance from 50% retracement from 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal. Sustained break of 1.6692 will indicate medium term reversal and would turn outlook bearish for 1.4813 support.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Tertiary Industry Index M/M Jun
-0.10%
0.20%
0.90%

23:50
JPY
Japan Money Stock M2+CD Y/Y Jul
3.00%
3.00%
3.00%

05:00
JPY
BoJ Monthly Report

05:00
JPY
Consumer Confidence Index Jul
41.5
42.3
41.1

06:00
JPY
Machine Tool Orders Y/Y Jul P
37.70%

34.10%

07:15
CHF
Retail Sales (Real) Y/Y Jun
3.40%
0.70%
-0.60%
-0.50%
12:15
CAD
Housing Starts Jul
200K
194K
198.2K
199K

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