Mid-Day Report: Sentiments Recovered as Russia Seeks Tension De-Escalation

European indices opened sharply lower today on risk aversion after US President Obama authorized air strikes in Iraq if they move towards the Kurdish city of Erbil. Nonetheless, sentiments quickly reversed on news that Russia is trying to de-escalate the Ukraine tensions, just a day after president Putin declared he’d hit back on sanctions against his country. European indices pared back the losses and is trading flat at the time of writing. US futures also reversed and is pointing to a mildly higher open. Nonetheless, investors would likely stay cautious ahead of the weekend considering all of the geopolitical risks in Ukraine, Iraq as well as Israel. In the currency markets, the Japanese yen pared back some of the gains into US session but stays the strongest currency this week.

Some weakness is seen in Canadian dollar after weaker than expected employment data. The job market grew merely 0.2k in July versus consensus of 25.4k. Unemployment rate was unchanged at 7.0%. USD/CAD is heading back to this week’s high of 1.0985 after the release. Meanwhile, EUR/CAD has indeed resumed recent rebound and is making a weekly high at 1.4681. Also released in US session, US non-farm productivity rose 2.5% in Q2 while unit labor costs rose 0.6%.

Released earlier today, UK construction output rose 1.2% mom in June, trade deficit was wider than expected at GBP -9.4b in June. German trade surplus narrowed to EUR 16.2b in June. Swiss unemployment rate was unchanged at 3.2% in July. Australia home loans rose 0.2% in June versus expectation of 0.7%.

The BOJ today left the asset buying program to increase the monetary base at an annual pace of 60 to 70 trillion yen. In the policy statement, policymakers indicated that “exports have shown some weakness”. This was compared with the language in July that “exports have recently leveled off more or less”. On industrial production, the BOJ acknowledged that output “has continued to increase moderately as a trend, although it has recently shown some weakness”. In July, the central bank noted that production had “continued to increase moderately as a trend, albeit with some fluctuations”. Also released from Japan, current account surplus narrowed to JPY 0.13T in June and bank lending rose 2.2% yoy in July.

China’s trade surplus widened to USD 47.3b in July from USD 31.56b a month ago. The record high reading was driven by acceleration of exports growth and decline in imports. Exports rose 14.5% yoy to USD 212.9b, following a 7.2% increase in June, whilst imports fell -1.5% yoy to USD 165.6 , after a 5.6% increase in June. Despite the strong headline reading, the details unveiled sluggish domestic demand as commodity and component imports dropped.

Daily Pivots: (S1) 1.6815; (P) 1.6839; (R1) 1.6856; More

Intraday bias in GBP/USD remains on the downside for the moment as the decline from 1.7190 continues for 1.6692 key support level. Current developments indicated medium term topping at 1.7190 and the trend is possibly reversing. Decisive break of 1.6692 should 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
Current Account (JPY) Jun
0.13T
0.11T
0.38T

23:50
JPY
Bank Lending incl Trusts Y/Y Jul
2.20%

2.30%

01:30
AUD
Home Loans Jun
0.20%
0.70%
0.00%
-0.10%
02:00
CNY
Trade Balance Jul
$47.3B

$31.56B

03:00
JPY
BoJ Monetary Policy Statement

05:45
CHF
Unemployment Rate Jul
3.20%
3.20%
3.20%

06:00
EUR
German Trade Balance (EUR) Jun
16.2B
19.8B
17.8B
18.8B
08:30
GBP
Visible Trade Balance (GBP) Jun
-9.4B
-8.9B
-9.2B

08:30
GBP
Construction Output M/M Jun
1.20%
1.10%
-1.10%
-1.20%
12:30
CAD
Net Change in Employment Jul
0.2K
25.4K
-9.4K

12:30
CAD
Unemployment Rate Jul
7.00%
7.00%
7.10%

12:30
USD
Non-Farm Productivity Q2 P
2.50%
1.40%
-3.20%

12:30
USD
Unit Labor Costs Q2 P
0.60%
1.30%
5.70%

14:00
USD
Wholesale Inventories Jun

0.60%
0.50%

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