US consumer and construction data ahead

The USD edged higher against its counterparts yesterday, as the US retail sales growth rate for July, accelerated beyond market expectations and reached 1.0% mom. The release tended to imply that the average US consumer is willing and able to spend more in the US economy and thus support it, allowing for a soft landing scenario to re-emerge. It should be noted that the release tended to overshadow economic activity data for the current and past month, that underperformed market expectations. Today we highlight another US demand-related release namely the preliminary University of Michigan consumer sentiment for August and should it rise as expected or even more it could provide additional support for the greenback.

As for US stock markets, we note a mini rally of Asian stocks during today’s Asian session. Overall, we note the improvement of the risk appetite of the markets which may benefit riskier assets and weigh on safe havens such as JPY. It should be noted that analysts are highlighting the possibility of a restart of the popular carry trade, which also tends to weigh on the Japanese currency. It’s characteristic that Bloomberg reports that ATFX Global Markets witnessed around a 30% to 40% rise in yen shorts in the past week. Yet the overall situation depends on the stance of BoJ. Should the bank renew hawkish tendencies possibly hiking rates again we may see carry trade and JPY short positions easing and vice versa.     

USD/JPY corrected lower during today’s Asian session, after yesterday’s rally and continues to fluctuate around the 148.90 (R1) level. We tend to maintain a bullish outlook for the pair, as long as the upward trendline guiding the pair since the 5^th of august remains intact. We note that he RSI indicator is rising yet is currently still below the reading of 50, implying that the bearish sentiment for the pair is subsiding, yet has not been totally erased yet. Should the bulls maintain control aas expected, we may see the pair, breaking clearly above the 148.90 (R1) resistance line and taking aim of the 151.90 (R2) resistance level. Should the bears take over we may see USD/JPY initially breaking the prementioned upward trendline, signalling an interruption of the upward movement and reaching if not testing the 146.00 (S1) support line.   

Cable rose yesterday despite the overall strengthening of the USD in a sign of wider strength for the pound. The release of UK’s preliminary GDP rate for Q2, highlighted the resilience of the UK economy despite a slowdown of the rate. It should be noted that in the past days, employment data showed a tightening of the UK employment market for June and an easing of inflationary pressures in the UK economy for July.  Today we got the final piece of the puzzle with the retail sales growth rate for July accelerating as expected, benefiting probably also from the warm weather. At this point we note that the Bank of England has started to cut rates at the beginning of the month yet the rates are still in restrictive territory as the bank is still fighting inflation, which may support the pound, on a monetary level.   

Cable continued to rise yesterday and during today’s Asian session, aiming for the 1.2890 (R1) resistance line. We maintain a bullish outlook as the upward trendline continues to guide the pair since the 8^th of August. At the same time the RSI indicator is on the rise, implying a slow intensification of the bullish sentiment for the pair among market participants. Should the buying interest be maintained, we may see the pair breaking the 1.2890 (R1) resistance line and setting the 1.3045 (R2) resistance base in its sights. Should the bears take over, we may see the GBP/USD breaking the initially the upward trendline in a sign that the upward movement has ended and and aim for, if not breach the 1.2760 (S1) support line.     

Other highlights for the day:

Today during the American session, we get the US and Canada’s construction data for July and June respectively While Chicago Fed President Goolsbee speaks. In Monday’s Asian session, we get Japan’s machinery orders rates for June.  

USD/JPY Daily Chart

• Support: 146.00 (S1), 143.40 (S2), 140.30 (S3)
• Resistance: 148.90 (R1), 151.90 (R2), 154.60 (R3)

GBP/USD Daily Chart

• Support: 1.2760 (S1), 1.2600 (S2), 1.2450 (S3)
• Resistance: 1.2890 (R1), 1.3045 (R2), 1.3140 (R3)

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