Mid-Day Report: Yen Jumps as Sentiments Down on Ukraine, Italy Recession

The Japanese yen is broadly higher today as markets are weighed by risk aversion. Escalation in the Ukraine crisis was a major factor driving global equities down. Furthermore, European stocks were pressured as Italy unexpectedly slipped back into recession. Economic data released from Germany and UK were also disappointing. US stocks futures point to lower open today and we’d likely see recent correction extends. Yen, and to a lesser extent dollar, would remain firm with some more upside prospects. Released in early US session, Canada trade showed CAD 1.9b surplus in June, US trade deficit narrowed to USD -41.5b in June.

Italy GDP unexpectedly contracted -0.2% qoq in Q2 after -0.1% qoq contraction in Q1. The Eurozone’s third largest economy is back in technical recession. Eurozone retail PMI dropped to 47.6 in July. German factory orders dropped sharply by -3.2% mom in June versus expectation of 0.5% mom. That’s the worst contraction since 2011. Economists noted that Eurozone economy remained sluggish at best and today’s data indicated the mounting downside risks to ECB’s economic outlook.

Released from UK, industrial production rose 0.3% mom,, 1.2% yoy in June versus consensus of 0.6% mom, 1.5% yoy. Manufacturing production rose 0.3% mom, 1.9% yoy versus expectation of 0.6% mom, 2.1% yoy. The BRC shop price index dropped -1.9% yoy in July, the worst on record. Expectations on whether BoE would start tightening before year end flip-flops frequently recently on mixed economic data. Released from Swiss, CPI was unchanged at 0.0% yoy in July.

In response to sanctions from the US and EU targeting Russia’s economic development, President Putin ordered his government to prepare retaliatory measures against the West community. As quoted by Interfax, Putin indicated the government has “already proposed a series of retaliatory measures against the so-called sanctions of certain countries” with “the goal of protecting the interests of domestic producers”. The humanitarian situation in Ukraine has worsened, particularly as Russia has significantly built up its troop presence along the Ukrainian border in recent weeks, probably getting ready for large scale invasion of southeastern Ukraine.

New Zealand dollar weakened today with additional pressure from employment data. Unemployment rate dropped to 5.6% in Q2 versus expectation of 5.8%, hitting lowest level in over 5 years. However, that was mainly due to a drop in the participation rate to 68.9%, down from 69.3% in Q1. Employment growth slowed to 0.4% qoq, missed expectation of 0.7% qoq, down from prior quarter’s 0.9% qoq growth. RBNZ signaled last month that it will pause the tightening cycle and the employment data affirmed such stance. Released from Japan, leading indicator rose to 105.5 in June.

Daily Pivots: (S1) 1.3347; (P) 1.3386 (R1) 1.3413; More….

EUR/USD drops further to as low as 1.3332 so far today and intraday bias remains on the downside. Current decline from 1.3993 is still in progress and should target 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209 next. On the upside, break of 1.3444 resistance is needed to signal short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
Unemployment Rate Q2
5.60%
5.80%
6.00%
5.90%
22:45
NZD
Employment Change Q/Q Q2
0.40%
0.70%
0.90%

23:01
GBP
BRC Shop Price Index Y/Y Jul
-1.90%

-1.80%

05:00
JPY
Leading Index Jun P
105.5
105.5
104.8

06:00
EUR
German Factory Orders M/M Jun
-3.20%
0.50%
-1.70%

07:15
CHF
CPI M/M Jul
-0.40%
-0.40%
-0.10%

07:15
CHF
CPI Y/Y Jul
0.00%
0.00%
0.00%

08:10
EUR
Eurozone Retail PMI Jul
47.6

50

08:30
GBP
Industrial Production M/M Jun
0.30%
0.60%
-0.70%
-0.60%
08:30
GBP
Industrial Production Y/Y Jun
1.20%
1.50%
2.30%

08:30
GBP
Manufacturing Production M/M Jun
0.30%
0.60%
-1.30%

08:30
GBP
Manufacturing Production Y/Y Jun
1.90%
2.10%
3.70%

09:00
EUR
Italian GDP Q/Q Q2 P
-0.20%
0.10%
-0.10%

12:30
CAD
International Merchandise Trade (CAD) Jun
1.9B
-0.1B
-0.15B

12:30
USD
Trade Balance Jun
-41.5B
-44.2B
-$44.4B

14:00
GBP
NIESR GDP Estimate Jul

0.90%

14:30
USD
Crude Oil Inventories

-3.7M

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