EUR/USD: Investors Look For More Fed Rates Guidance
- The Commerce Department said that consumer spending rose 0.3% last month after a 0.5% gain in June. July's increase was in line with market expectations. When adjusted for inflation, consumer spending also rose 0.3% in July after advancing 0.4% in June.
- That suggests consumer spending retained much of its momentum from the second quarter, when it grew at a 4.4% annual rate, the fastest pace in nearly two years. The jump helped to mitigate some of the impact of a sharp inventory drop and prolonged business investment downturn. The economy grew at a lackluster 1.1% annual rate in the second quarter.
- Last month's consumer spending report added to data on the goods trade deficit, industrial production, durable goods orders and residential construction that have pointed to an acceleration in economic growth early in the third quarter. The Atlanta Fed is currently estimating the economy to grow at an annual pace of 3.5% in the third quarter. Consumer spending is being driven by a tightening labor market, which is steadily lifting wages. Rising home values and stock prices, which are boosting household wealth, are also supporting consumption.
- Monday's report from the Commerce Department came several days after Fed Chair Janet Yellen said the case for raising rates had strengthened in recent months. Low inflation, however, suggests the US central bank could wait until its December policy meeting before raising borrowing costs.
- July's upbeat consumer spending data lifted the dollar against a basket of currencies. The next key indicator is Friday's jobs report while Fischer, who said that the data could weigh on the decision over a hike, is due to speak again later on Tuesday in a television interview. Friday's US employment report is expected to show an increase of 180k jobs in August. Our forecast is slightly below the market consensus.
- An important EUR/USD support area is 1.1110/1.1120 with 200-dma, daily cloud base and daily low on August 10. We expect the rate to fall near these levels soon. We keep our strategy to buy the EUR/USD at 1.1085 unchanged.
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USD/JPY: Stronger Macroeconomic Figures From Japan
- Japanese Chief Cabinet Secretary Yoshihide Suga said on Tuesday the government is watching market moves carefully and is ready to respond "appropriately," when asked whether Tokyo could intervene in the currency market to stem excessive yen rises.
- Japanese household spending fell 0.5% in July from a year earlier, less than a median market forecast for a 0.9% drop and much smaller than a 2.3% decline in June. Separate data showed retail sales slid 0.2% in July from a year earlier, less than a median market forecast for a 0.9% drop.
- The jobless rate fell to 3.0% in July from 3.1% in June, hitting the lowest rate in more than 21 years and hovering near levels considered to be full employment.
- Today's data lower the likelihood of further monetary easing in Japan, but it is too early to judge whether the trend has changed. Despite three years of heavy money printing by the BOJ, soft household spending and a strong yen pushing down import costs have kept inflation distant from the bank's 2% target.
- The USD/JPY did not react to stronger-than-expected Japanese macroeconomic data. The nearest resistance area is 102.60/80 determined by August 8 and August 2 highs. Breaking above these levels would be a threat to our short position.