The dollar rally fizzled out during Thursday’s US session, after making strong gains from the FOMC statement and yesterday’s GDP data. Expectations for a September rate rise remain strong and employment and inflation data until the Fed’s next meeting will be closely watched by the markets.
Second quarter US growth disappointed slightly as the initial reading of 2.3% was below consensus estimates of 2.6%, but most analysts think that the tightening labor market will spur the US central bank to hike rates in September.
Inflation figures out in Japan for June showed annual inflation coming in slightly above forecasts. CPI rose by 0.4% in June, which is down on the previous month’s 0.5% but above estimates of 0.3%. Core CPI also beat estimates at 0.1%, versus forecasts of 0%. However, the Tokyo measure, which is one month ahead for July, showed Tokyo core CPI falling by 0.1% from a year earlier. Unemployment figures disappointed as it showed the unemployment rate ticking up by 0.1% to 3.4% in June.
The dollar touched a low of 123.90 yen in Asian trading but had recovered to 124.09 yen in late Asian session. The yen was weighed down in late session on reports that Bank of Japan Governor Haruhiko Kuroda did not intend to talk up the yen in June and sees a weak yen as beneficial for the Japanese economy. This clears the way for the dollar to break through the 125 level, which it has failed to do since its peak of 125.85 in June.
The euro moved higher in late Asian session, mainly on dollar sell-off. The single currency rose back above 1.09 dollars overnight and was last trading at 1.0949. It was also sharply higher against the yen and pound, climbing to 136.01 yen and the 0.7025 pounds.
German retail sales fell sharply by 2.3% in June from a month ago but upward revision to previous months means that sales are 5.1% higher from a year ago. While in the UK, consumer confidence survey by GfK showed China and Greece worries hurting UK confidence, with the index falling to 4.0 in July from 7.0 in June.
The pound fell to 1.5586 against the dollar in late Asian session, having reached 1.5615 earlier in the session.
Eurozone inflation figures will be the focus for European data later in the day as flash CPI for July is released. In the US, the Chicago PMI and University of Michigan final confidence figures for July are due, as well as the employment cost index for the second quarter.
Technical Analysis – EUR/GBP holds above 0.70 but outlook is bearish
EUR/GBP moved higher on Friday after three straight sessions of losses but it was still not too far from the 7.5-year low of 0.6936 it touched on July 17. With the stochastics heading down towards 20 and RSI below 50, the near term bias is bearish. Any upside momentum being signalled from the rising RSI is weak.
The medium term indicators are all looking bearish as prices remain below the moving averages and the Ichimoku cloud. The tenkan-sen line has also failed to cross above the kijun-sen line, having come close on July 22.
To regain positive momentum, EUR/GBP will need to break above the 50-day moving average around 0.7133, but further gains towards the 100-day moving average around 0.7190 would be needed to reverse the current downtrend. If prices head lower, a breach below the support level of the July 17 low would increase the downward momentum.
