Currency markets review, 29 July

 

Data released (actual, consensus, previous):  

08:30 GMT UK Mortgage Approvals (Jun) 57.667K    59.500K    58.071K       

08:30 GMT UK GBP    Consumer Credit (Jun)  £0.5B   _     £0.8B       

08:30 GMT UK GBP    M4 Money Supply (MoM) (Jun)   0.1%    0.2%    -0.1%        

08:30 GMT UK GBP    Net Lending to Individuals (MoM) (Jun)    £1.0B    £1.4B    £0.5B       

10:00 GMT UK CBI reports Distributive Trades Survey (Jul)   17    11    1

 

The dollar strengthened versus the majority of its most-traded peers amid expectations the Federal Reserve will reiterate plans this week to reduce stimulus if economic performance continues to show signs of improvement.

 

The US currency rose after an industry report showed pending U.S. home sales declined. The Federal Reserve’s Open Market Committee starts a two-day meeting tomorrow.

 

Japan’s currency advanced against all of its major peers after Japanese retail sales fell and Chinese industrial companies reported slowing profits, boosting demand for haven assets.

 

The MSCI Asia Pacific Index of stocks dropped 1.6%, while the Topix index of Japanese shares slid 3.3%. Standard & Poor’s 500 Index lost 0.2%.

 

The main currencies trade in flat waiting for important news later this week. The ECB this week can deliver much the same statement as last time including the forward guidance that rates will be left at present or lower levels for an extended period of time. But Draghi’s press conference, while continuing to suggest the second half recovery remains on track, will also continue to keep the threat of interest rate cuts alive.

 

EURO:

The Euro stuck in the narrow range. German Parliamentary Budget Committee approved Greek payment, but it has no impact on the single currency.

 

EUR/USD was under $1.3300, with closest support coming  at $1.3255 (high Jun 21).  Below $1.3160 initial support is around $1.3140 and  $1.3070/60 (Jul 18 lows). Above $1.3300 (Jun 6 high) gains will extend to and $1.3325.

 

POUND:

The pound dropped ahaed BoE meeting results on Thursday because investors prefer cut longs. Asset Purchase Facility is expected to remain at £375K, while key lending rate is set to left unchange at 0.5%.

 

GBP/USD erased below recent highs on $1.5416 (initial resistance).  Initial support remains at Friday’s lows on $1.5350, then - at $1.5180 (Tuesday’s lows) with a break lower widens losses to $1.5150 (Jul 18 lows) and $1.5080 (Jul 17 lows). Above  $1.5416 resistance is near $1.5480 (Jun 25 highs).

 

YEN:

USD/JPY compensated morning losses. Official data released before the stock market’s open showed Japan’s retail sales climbed 1.6% in June from the year-ago month, though just short of forecasts.

In a speech at a meeting of the Research Institute of Japan, BoJ Kuroda said he continues to expect a moderate recovery in Japan going forward, while he remains confident that the country is on track to beat deflation, although time will be needed to reach the 2% price level, without specifying a concrete date.

 

Kuroda reiterated that the BOJ easing has not intention to depreciate the currency, adding that wage raises is a critical component to achieve sustained inflation. On the QE practices, Kuroda said it is working well to end deflation.

 

Kuroda hinted that while fiscal consolidation is necessary, Japan's economy faces its biggest risk from outside the country, saying they are closely monitoring the situation in China to see if they achieve a 'soft landing. Kuroda also said the CPI growth rate, capex will gradually accelerate. On the sales tax, Kuroda said don't think raising the tax in two steps will hurt economic growth.

 

USD/JPY remained above Y97.65/50 (50% Fibo from Y93.80 - Y101.50, also the lower bound of the channel from Jul 7 and session lows). If break under support comes at Y96.75 (61.8%). Initial resistance is near session highs at Y98.30, above - at Y98.80/90 (ex-support). Further resistance is around Y100.47 (Thursday’s high).

 

DATA AHEAD:

EMU Jul Business Climate is due to come at 09:00 GMT. The same time EMU releases Jul Consumer Confidence (-17.4 expected vs -18.8), Economic Sentiment Indicator (93.0 expected vs 91.3) and Industrial Confidence (-10.3 vs -11.2).

 

At 12:30 GMT Canada issues Jun Industrial Product Pricem followed by US Jul Consumer Confidence at 14:00 GMT. Analysts expect 81.5 after 81.4.

 

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