Daily Commentary: Pound Gains Ground Against Dollar

Improved employment situation sends pound higher. The pound gained ground against the US dollar and the euro following Wednesday’s release of minutes from the Bank of England as the Unemployment level for the April to June (quarter) arrived inline with expectations at 7.8%. At the same time the UK Claimant Count Change came in much better than expected for July at -29.2k versus -15k (consensus) giving more bullish momentum to sterling hitting a high at 1.5507 during the European session. Bank of England Governor Mark Carney stated that would keep interest rates low (0.5%) until unemployment falls to 7% or below. Despite the inflation figures it could come out of control in the near term as at the moment is above 2.0%, Thursday’s figures revealed that the manufacturing output along with the service sector and housing market can keep the sterling stronger in the short term as it indicates that the recovery in the UK economy is picking up.

In the United States, the Producer Price Index (YoY) came in at +2.1% in July, below expectations of +2.4%. Moreover, the Producer Price Index ex Food & Energy (YoY) grew only +1.2% in July, against estimates for +1.4% with both figures falling short of economist expectations.

It’s CPI day and the US Core along with the CPI is usually a high impact release, as some members of the FOMC worrying about inflation been too low. The Unemployment Rate for July was 7.4% improving from 7.6% in June 2013.

UK Retail sales are due out today and of course this is considered one of the most important indicators of consumer spending since the UK annual inflation rate is rising out of control, even though it edged down to 2.8% in July. UK Retail sales are expected to have risen by 0.5% mom from 0.2% to 0.7% and 0.2% yoy from 2.2% to 2.4% in July. In additions, Retail Sales excluding food and energy are expected to rise from 0.2% to 0.6% mom and from 2.1% to 2.7% yoy in July, which would be GBP supportive.

The Market

EUR/USD
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• EUR/USD moved higher during the overnight trading session, after testing twice the 1.3231 (S1) support level and currently is trading near the psychological resistance of 1.3300 (R1). If buying pressure continues and manages to push the price above that level, a bullish extension would be triggered towards the 1.3400 (R2) resistance level. It is worth noting that the RSI oscillator has just crossed above its equilibrium level of 50 entering a bullish territory and alongside with the moving averages indications, strengthens the probabilities for a further upward move.

• Support: Support is found at the 1.3231 (S1) level, followed by the 1.3152 (S2) and 1.3077 (S3) respectively.

• Resistance: Resistance is at the psychological 1.3300 (R1) and 1.3400 (R2) levels, followed by the 1.3525 (R3), found from the daily chart.

USD/JPY
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• USD/JPY managed to test the downtrend line and turned down to continue its move through its respective downward-sloping trading channel, as we expected in yesterday’s comments. Currently is testing the 97.67 (S1) which has acted as a support level several times during the recent past. If the bears are strong enough to push the rate below that level, they should drive it towards the 95.77(S3) and the 95 area, where we expect the completion of a long term (daily chart) “head and shoulders” formation.

• Support: Support is at the 97.67 (S1) previous resistance, followed by the 95 area (S2) where the neckline of the daily “head and shoulders” formation lies and the 93.77 (S3) level.

• Resistance: Resistance levels are the psychological round number of 100.00 (R1), the 100.84 (R2) and the 101.53 (R3).

GBP/USD
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• GBP/USD found support at 1.5431 (S1) last week and in succession the rate moved towards the resistance level of 1.5569 (R1). A break above that level should lead the pair towards the next resistance level of 1.5674 (R2). Moreover, the pair remains above both the 20-period and the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.

• Support: Support levels are at the 1.5431 (S1), 1.5201 (S2) and 1.5102 (S3).

• Resistance: Resistance is identified at 1.5569 (R1) followed by the 1.5674 (R2) and 1.5752 (R3) levels.

Gold

• Gold moved higher during yesterday’s session, after finding support at the 1320.78 (S1) level. The price is currently testing Monday’s high at 1347.27 (R1), and if the bulls act more aggressively than the bears, a break above that level will drive them towards the next resistance at 1376.73 (R2). Moreover, the 20-period moving average remains above the 200-period moving average, giving some bullish indication for the precious metal. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold is still moving in a downtrend.

• Support: Support levels are at 1320.78 (S1) followed by the 1271.88(S2) and 1245.03 (S3).

• Resistance: Resistance levels are at 1347.27 (R1), 1376.73 (R2) and the 1423.60 (R3) (June highs).

Oil

• WTI moved slightly upwards during yesterday’s session and is currently near the resistance level of 107.53 (R1). The pair is moving in a trading range between the 102.62 (S2) and 108.96 (R2) boundaries and a penetration of one of them should give us clear indications about the next trending direction.

• Support: Support levels are at the psychological 105.00 (S1) level, at the102.62 (S2) and 100.80 (S3).

• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).

BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS

MARKETS SUMMARY