UK Retail Sales Jump, USD/JPY Falls Amid Dovish FOMC Minutes
Swissquote Bank Ltd | Aug 18, 2016 07:00AM ET
Forex News and Events
UK retail sales surprise to the upside (by Arnaud Masset)
UK retail sales came in much better-than-expect in July in spite of Brexit doldrums. Retail sales excluding auto and fuels rose 5.4% y/y, beating median forecast and previous reading of 3.9% as the sales of textile, clothing and footwear increased 5.1% m/m, compared to a contraction of 1.6% m/m in June.
The weak pound may have helped to boost consumers spending, however it seems that the market has been overly pessimistic regarding the effects of the UK decision to leave the European Union. A weaker pound is therefore a good thing to help the UK economy weathers the expected contraction in GDP.
In its last report, the Bank of England holds steady its GDP growth forecast to 2% for 2016 but revised sharply lower its forecast for 2017 from 2.3% to 0.8% in anticipation of a substantial slowdown in personal consumption.
Maybe the solid retail sales in July is a one-timer and the positive effects of the weaker pound will be short-lived. However, one thing is certain: the market has been overly pessimistic in the wake of the Brexit vote and would clearly need to better assess the ins and outs. GBP/USD surged sharply after the release, rising 0.80% to 1.3160.
BoJ to intervene amid continued dovish stance from Fed? (by Yann Quelenn)
The Fed minutes have highlighted the large divide between members on policy normalization. As we have written several times, US debt is far too significant to drive rates higher, as servicing this debt would become too expensive. Instead, this debt needs to killed by strong inflation.
The reason why we believe there will be no rate hike in September and why the stock market is sky rocketing every two days to new highs boils down to this: the dovish stance of the Fed.
The big loser yesterday after the release of the Fed minutes was Japan. The dovish stance of the Fed is pushing the dollar lower and the psychological level of 100 yen for one dollar has been broken once again.
The BoJ, which is all-in in terms of accommodative monetary policy, is expected sooner or later to add further stimulus. Markets are definitely pushing the BoJ to intervene again by appreciating the yen. Where will it stop?
These kinds of monetary policies have never been experienced in the history of central banks and nobody knows how it will end. But there’s one thing for sure: one ounce of gold has increased by more than 300 hundred dollars since the start of the year.
Oil rebound continues (by Peter Rosenstreich)
Crude oil continues to firm on expectations that Saudi Arabia and Russia will take measures to limit the current supply gut. WTI crude climbed to $46.90 (5th straight day of gains and the longest positive run of the year), while Brent rose to the $50 handle.
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Trader optimism that oil could trade higher was aided by news that Saudi output was nearing new record output (i.e. closer to max capacity). In addition, news that US crude stockpiles unexpectedly declined last week while the active summer driving season was pressuring gasoline demand supported crude prices.
We remain skeptical that renewed talks of a production freeze by OPEC and other large producers can actually produce an executed agreement while the global demand backdrop looks weak; suggesting that the current rebound in oil prices is likely to stall.
However, the recovery in crude and yield seeking behavior should support commodity linked currencies especially RUB, BRL, CAD, NOK and potentially provide Venezuela with some marginal support.
EUR/CHF - Lower Highs And Higher Lows.
The Risk Today
Yann Quelenn
EUR/USD continues to increase after breaking hourly resistance at 1.1234 (02/08/2016 low). Buying pressures are important. Strong resistance is given at 1.1428 (23/06/2016 high). Hourly support can be found at 1.1046 (05/08/2016 low). Expected to further increase. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD is trading above 1.3000 despite the bearish momentum is lively. The pair is testing hourly resistance at 1.3097 (08/08/2016 high). Expected to head towards support given at 1.2798 (06/07/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY is bouncing around the 100-mark. Strong support given at 99.02 (24/06/2016 low). Hourly resistance is given at 102.83 (02/08/2016 high). Selling pressures should continue. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF is trading lower. The pair has totally erased hourly support at 0.9634 (02/08/2016 low). Hourly resistance can be found at 0.9844 (09/08/2016 high). Expected to further weaken. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
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