The USD pulled stronger almost across the board yesterday, with only EM currencies able to resist the biggest currency’s strength. GBPUSD cracked 1.7000 support on the weaker than expected retail sales data and AUDUSD reversed course after the recent poke higher. Even USDJPY managed to poke at the upper range resistance as US weekly initial jobless claims notched their lowest level in over eight years – barely missing the lowest level since the year 2000.
The jobless claims print yesterday is just one data point, but one can argue that this kind of data point will finally see the Fed beginning to rattle its cage a bit more loudly on the need to hike rates far sooner than is currently anticipated. Another few weeks of sub-300,000 jobless claims reading and a nonfarm payrolls print of +300,000 in July and August would put the USD outlook in an entirely different place than it is currently. USDJPY in focus next week – finally? USDJPY is often the most sensitive to anticipation of Fed rate moves. Despite recent subtle shifts in Fed chief Janet Yellen’s rhetoric that have raised anticipation – at least on my part – that the Fed will be forced to move forward its rate hike guidance, the actual shifts in measures like the Fed Funds futures have been rather modest. Next week will either provide a firmer shift forward in this anticipation or see further conviction that the Fed is on a preset course that it is too afraid to alter for fear of triggering market volatility. Further hints from the Yellen Fed next week in the policy statement that it is becoming increasingly satisfied with the improvement in employment. Chart: USDJPY USDJPY has merely pulled slightly higher again within the local range, though this has at least neutralised the immediate threat of a break lower. It will take a significant shift forward in the anticipation of the Fed’s first hike as well as a technical move through the local range high and the Ichimoku cloud to build an argument that we can break out of the range. Chart: GBPUSD The great GBPUSD bull market will either stand or fall today and next week as the pair is zeroing in on some critical support levels. The pair can survive the threat of lower levels tactically if it zips strongly back above 1.7000 on a strong UK Q2 GDP release today. But if the USD is heading sharply stronger next week and in the weeks following, a medium term death-blow to the secular bull will be dealt in the next if we descend all the way to the 1.6750 area and more or less entirely reverse the gains made since the late May lows. The 1.6880 area is the 61.8% final gasp for the bullish tactical hopes if we continue lower in the nearest term. Source (all charts): Bloomberg Saxo Bank Today’s European session sees further focus on SEK with the latest Retail Sales data. SEK is looking resilient after failing to hold higher on yesterday’s poor employment report, so we may have risk of a further dip lower in EURSEK to the next support levels toward 9.1400. The main event will be the German IFO survey after a ray of light poked through the gathering clouds of negative news as yesterday’s preliminary July PMI surveys suggested strengthening activity in Germany. This survey will offer more colour –with the expectations portion of the survey having turned strongly downward several months ago while the current assessment has been flat to only slightly down over the last four months. Then we have the preliminary UK GDP data after two GBP-negative event risks over the last couple of days have beat GBP much lower.