Mid-Day Report: Markets Stabilized from Risk Selloff

Risk sentiments stabilized today as European indices recovered from earlier losses while US futures point to a flat open. Yen pared back some of this week’s gain but maintains a mild bullish bias a markets head towards the weekly close. The forex market are relatively quiet except that some free selling is seen in Sterling as markets prepare for US open. Meanwhile, the Canadian dollar paid little attention to the inflation data. Canadian CPI accelerated 2.4% yoy in June while core CPI also rose to 1.8%. Wholesale sales rose 2.2% mom in May. Released earlier today, Eurozone current account surplus was narrower than expected at EUR 19.5b in May.

ECB governing council member and Bundesbank chief Weidmann said today that “there is a danger that the low interest rates will be used not to consolidate budgets, but to finance additional spending.” Hence, the governing council has insistently called for “sound public finances” as “prerequisite for a stability oriented monetary policy”. And he emphasized Eurosystem “will not put off a necessary increase in central bank interest rates out of consideration. Nonetheless, just after ECB launched a historical stimulus package back in June, economists expected that the central bank is at least two years away from rate hike.

Meanwhile, IMF chief Lagarde urged ECB to maintain loose monetary policy as the recovery in Eurozone remained “fragile, quite modest and imbalanced”. She noted that markets could have bee “too positive” compared to the fundamentals. And she said policy must remain accommodative ” until private demand has fully recovered and the ECB has achieved its price stability objective”.

The minutes of the June 12-13 BoJ meeting showed that policy makers were concerned with the geopolitical risks posed by Ukraine and Iraq. Meanwhile, they believed that the economic recovery would remain on track and the slowing in CPI would be temporary only. And, while exports had “leveled off” more or less, they expected to “increase moderately, mainly against the background of the recovery in overseas economies”.

Daily Pivots: (S1) 1.7075; (P) 1.7109; (R1) 1.7133; More

GBP/USD’s sharp decline and break of 1.7058 indicates short term topping at 1.7190 on bearish divergence condition in 4 hours MACD. Intraday bias is turned to the downside and deeper pull back could be seen to 55 days EMA (now at 1.6961). At this point, there is no clear sign of trend reversal yet. Hence, we’d expect 1.6952 support to contain downside and bring rebound.

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
08:00
EUR
Eurozone Current Account (EUR) May
19.5B
24.3B
21.5B
21.6B
12:30
CAD
Wholesale Sales M/M May
2.20%
0.70%
1.20%
1.40%
12:30
CAD
CPI M/M Jun
0.10%
0.10%
0.50%

12:30
CAD
CPI Y/Y Jun
2.40%
2.40%
2.30%

12:30
CAD
BoC CPI Core M/M Jun
-0.10%
-0.10%
0.50%

12:30
CAD
BoC CPI Core Y/Y Jun
1.80%
1.70%
1.70%

13:55
USD
U. of Michigan Confidence Jul P

83
82.5

14:00
USD
Leading Indicators Jun

0.50%
0.50%

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