Focus Turned to Eurozone Confidence Data
Inflation data released last week, with PPI and CPI both came in slightly below expectation, has validated Fed’s view that moderation in economy, as a result of past monetary policy, is starting to cool inflation. With growth data still weak, except Philly Fed index, and consumer confidence tumbled, the chance for another hike from Fed within this year is looking slim. However, majors has failed to ride of this opportunity break through near term resistance against dollar. Instead, the overall market is still trapped in established range with outlook remains mixed.
Economic calendar in US is quite thin this week with focus on housing data, Chicago Fed index and durable goods order. Focus of the market will be turned back to data from Eurozone, Japan and UK.
Last week, the data from Eurozone was pretty mixed. Q2 GDP was firm but downward revision in consumer inflation was a surprise to the market. Focus will now be turned to German Aug ZEW investor confidence, Ifo business climate this week. Both index is expected to drop from previous month’s reading. However, any upside surprise could spark another rally in Euro.
Sentiments on Sterling has turned last week with weaker than expected consumer inflation data as well as retails sales despite strong producer inflation. BoE’s minutes revealed that the hike in Aug was made on a 6-1 vote with Blanchflower dissenting the hike. Also, the minutes explicitly mention the possibility of interest rates being lowered again if the hike proves to have been unnecessary. Based on recent inflation report which has upward revised inflation forecast, odds is still on further hike from BoE this year. However, the picture is now not as firm as it seems a week ago. And, with two more MPC members adding into the mix in September, the picture can be get more uncertain if the next round of economic data don’t support further hike. Such uncertainty was reflected in GBP/USD’s diminishing momentum as well as strong rebound in EUR/GBP. Q2 GDP from UK will be highly focused this week.
The yen continues to be under pressure against Euro last week. Tertiary industry index came in much worse than expected. Meanwhile, China’s surprise rate hike is not giving any boost to the yen. BoJ minutes released didn’t bring much new information to the market and was basically a non event. Focus will be turned to inflation data this week which is expected to drop 0.1% mom. With BoJ’s emphasize on slow tightening pace, the yen could continue to trade with an undertone against Euro and stay in range against dollar unless we really got an upside surprise in the inflation data.
GBP/USD
In the bigger picture, cable’s rally from 1.8090 has reached as high as 1.9142, slightly below mentioned 1.9199 projection target (61.8% projection of 1.7230 to 1.9024 from 1.8090). Subsequent fall with daily MACD dragged to below signal line indicates a short term top is formed already.
More importantly, with bearish divergence condition displayed in daily MACD and RSI, as well as possibly in weekly RSI too, an important medium term top is around the corner, if not formed yet. So a decisive break of 1.9199 (with a weekly close above) is needed to confirm the whole up trend has resumed for 1.9554 (2004 high). Otherwise, there is substantial risk of larger scale correction/consolidation.
On the downside, a break below 1.8538 cluster support (61.8% retracement of 1.8174 to 1.9142 at 1.8544) will add much credence to the case that a medium term top is formed. In such case, further pull back towards 1.8090 low (50% retracement of 1.7047 top 1.9142 at 1.8095) should be seen.
In the near term picture, short term bias will remain on the downside as long as cable stays below 1.9024 resistance. Break of 38.2% retracement of 1.8174 to 1.9142 at 1.8914 at 1.8772 will encourage further fall towards mentioned 1.8538 cluster support. Meanwhile, above 1.9024 will indicate the retreat from 1.9142 high has completed and and a retest of 1.9199 fibo resistance should follow.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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