Mid-Day Report: Sterling Shone on CPI, Dollar Firm Despite Mixed Data

Dollar is mildly higher in early US session against other major currencies except Sterling, despite mixed economic data. Retail sales rose 0.2% in June versus expectation of 0.6%. Ex-auto sales rose 0.4% versus expectation of 0.6%. Import price index rose 0.1% mom in June versus expectation of 0.3% mom. Nonetheless, empire state manufacturing index rose to 25.6 in July versus expectation of falling to 17.2. The focus will turn to Fed Chairman Janet Yellen’s testimony before the Senate Banking Committee (The testimony the House Financial Services Committee would be held Wednesday). What the market is concerned the most is how the Fed would react, in terms of monetary policy, to the decline in the unemployment rate and the pickup in inflation, an indication of a growth economy.

Sterling jumps sharply today after much stronger than expected consumer inflation data. CPI accelerated to 1.9% yoy in June, up from 1.5% yoy and beat consensus of 1.6% yoy. Core CPI also accelerated to 2.0% yoy versus expectation of 1.7% yoy. The headline CPI is now just 0.1% below BoE’s target of 2.0% after staying below for the seven straight months. BoE governor Carney said today that when the rate cycle would start will be “driven by the data”. And, he’s concerned that markets “were not reacting to data, a fairly long run of data, that was as good as expected. According to a Bloomberg survey released earlier this week, 34% of economists expected BoE to hike interest rates from the current record low of 0.50% by December. That’s a notable rise from 12% back in early June. Nonetheless, half the 50 economists surveyed predicted the first hike in Q1 of 2014. Also released, PPI input dropped -4.4% yoy in June, PPI output rose 0.2% yoy, PPI output core rose 1.0% yoy.

In Eurozone, German ZEW economic sentiment dropped for the seventh month to 27.1 in July versus expectation of 30.0. Current situation gauge dropped sharply to 61.8 versus expectation of 67.5. Eurozone ZEW economic sentiment rose to 61.8 but missed expectation of 62.3. ZEW President Clemens Fuest said in a statement that “German economy has experienced a slight dent” and “retail sales declined and industrial production as well as incoming orders dropped.” Nonetheless, he maintained that Germany’s medium term economic outlook remains positive. ECB president Draghi told the newly formed European parliament yesterday that quantitative easing “falls squarely” in the central bank’s mandate. Meanwhile, “the appreciation that took place since mid-2012 had an impact on price stability,” and the exchange rate of Euro “remains an important driver of future inflation in the euro area.” IMF urged ECB to consider a large-scale asset-purchase as that “can push up inflation by raising consumption and investment across the euro area, and support that trend by reviving the supply and demand for bank credit.”

The BOJ announced earlier today to maintain the asset purchases program to increase base money by 60-70 trillion yen per year. It also maintained the forecast that inflation would reach its 2% next year. In light of recent disappointment from economic data, the BOJ trimmed its growth forecasts to 1% for the current financial year, down from previous estimate of 1.1%, but left the 2015 and 2016 growth estimates unchanged at 1.9% and 2.1% respectively.

The RBA minutes for the July meeting contained little new information. However, it revealed that policymakers remained uncertain about the economic outlook. While monetary easing has been working to boost demand, it is hard to gauge the impacts of the decline in mining investment and planned fiscal consolidation on the economy. Despite improvement in the employment condition, the forward-looking indicators have been mixed. The RBA reiterated that Australian dollar has been strong and warned of the negative impacts on the economy. More in RBA Finds It Hard To Judge The Effect Of Decline In Mining Investment And Budget Tightening.

Daily Pivots: (S1) 1.7053; (P) 1.7098; (R1) 1.7127; More

The strong rebound in GBP/USD today suggests that consolidation from 1.7179 is already finished at 1.7058. Intraday bias is cautiously on the upside for 1.7179 first. Break will resume the larger up trend and target t next key long term fibonacci level at 1.7332. We’d expect loss of momentum as it approaches this level and reverse from there. But also, considering bearish divergence condition in 4 hours MACD, break of 1.7058 should now indicate near term topping and turn bias to the downside for 1.6952 support.

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
23:01
GBP
BRC Sales Monitor Y/Y Jun
-0.80%

0.50%

01:30
AUD
RBA Minutes

03:00
JPY
BoJ Monetary Policy Statement

07:15
CHF
Producer Import Prices M/M Jun
0.00%
0.10%
0.10%

07:15
CHF
Producer Import Prices Y/Y Jun
-0.80%
-0.80%
-0.80%

08:30
GBP
CPI M/M Jun
0.20%
-0.10%
-0.10%

08:30
GBP
CPI Y/Y Jun
1.90%
1.60%
1.50%

08:30
GBP
Core CPI Y/Y Jun
2.00%
1.70%
1.60%

08:30
GBP
RPI M/M Jun
0.20%
-0.10%
0.10%

08:30
GBP
RPI Y/Y Jun
2.60%
2.40%
2.40%

08:30
GBP
PPI Input M/M Jun
-0.80%
0.00%
-0.90%
0.30%
08:30
GBP
PPI Input Y/Y Jun
-4.40%
-4.50%
-5.00%
-3.80%
08:30
GBP
PPI Output M/M Jun
-0.20%
0.10%
-0.10%

08:30
GBP
PPI Output Y/Y Jun
0.20%
0.50%
0.50%

08:30
GBP
PPI Output Core M/M Jun
0.00%
0.00%
0.00%

08:30
GBP
PPI Output Core Y/Y Jun
1.00%
1.00%
1.00%

08:30
GBP
DCLG UK House Prices Y/Y May
10.50%
10.20%
9.90%

09:00
EUR
German ZEW (Economic Sentiment) Jul
27.1
30
29.8

09:00
EUR
German ZEW (Current Situation) Jul
61.8
67.5
67.7

09:00
EUR
Eurozone ZEW (Economic Sentiment) Jul
61.8
62.3
58.4

12:30
USD
Advance Retail Sales Jun
0.20%
0.60%
0.30%
0.50%
12:30
USD
Retail Sales Less Autos Jun
0.40%
0.60%
0.10%
0.40%
12:30
USD
Empire State Manufacturing Jul
25.6
17.2
19.3

12:30
USD
Import Price Index M/M Jun
0.10%
0.30%
0.10%

14:00
USD
Business Inventories May

0.60%
0.60%

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