US GDP advance rate for Q2 eyed

The USD edged lower against its counterparts yesterday. It should be noted that July’s preliminary PMI figures provided mixed signals for economic activity, as the manufacturing sector suffered a contraction, while in the services sector we had a wider expansion of economic activity. Today market focus is on the release of the US preliminary GDP advance rate for Q2. The rate is expected to accelerate and reach 2.0% qoq (annualized) and if actually so, could support the USD as the US economy grew at a faster pace than in Q1.

Meanwhile in Canada, BoC proceeded to cut rates by 25 basis points as was expected. The release tended to weigh on the Loonie, as the bank in its recognised the presence of excess supply which is expected to ease inflationary pressures further. At the same time, it also stated that it remains data-dependent which tends to add some ambiguity for its intentions. Yet we note that the bank seems to be hinting towards more rate cuts to come, which may keep CAD under pressure.

In the Eurozone, the release of the preliminary PMI figures for July, showed an unexpectedly deeper contraction of economic activity for the manufacturing sector in France and especially in Germany. It should be noted that the contraction of economic activity in the manufacturing sector seems to slow down economic activity in the Eurozone as a whole for the month. The release tended to darken the economic outlook of the Eurozone and may weigh on the EUR.

Maybe the most characteristic move of yesterday in the FX market was the strengthening of JPY across the board. The strengthening of JPY seems to be related to the unwinding of JPY short positions, through carry trade, but also BoJ’s interest rate decision next week at which the bank is expected to deliver another rate hike. Please note that during tomorrow’s Asian session we get Tokyo’s CPI rates for July and a possible acceleration could provide some support for JPY.

On a technical level, we note that USD/JPY continued to drop yesterday and during today’s Asian session, breaking the 154.60 (R1) support line now turned to resistance. The bearish movement of the pair since the 11 if July has intensified over the past two days negatively diverging from the downward trendline. Hence we tend to maintain our bearish outlook for the pair and note that the RSI indicator has dropped below the reading of 30, highlighting the intense bearish sentiment among market participants for the pair. Yet the RSI indicator may also imply that the pair has reached oversold levels and may be ripe for a correction higher, while similar signals come from the fact that the price action has broken below the lower Bollinger Band. Should the bears maintain control over the pair, we expect USD/JPY to break the 151.00 (S1) support line, paving the way for the 146.50 (S2) support level. For a bullish outlook, the bar is high as we would require the pair to break the 154.60 (R1) resistance line, break the downward trendline guiding the pair in a first signal that the downward motion has been interrupted and continue higher to aim for the 157.60 (R2) level.

US stock markets uniformly fell yesterday. It was characteristic that all three major US stock market indexes the Dow Jones, S&P 500 and Nasdaq ended their day in the reds. It seems that the rout of tech shares is now extending throughout the market as the AI frenzy is settling down. Should the market’s uncertainty be maintained or even intensify we may see losses for US stock markets extending today, which in turn Overall we find US stock markets in a very delicate position and should they not find a footing within the next two days the bearish movement could become a self-fulfilling prophecy under certain circumstances.

USD500 dropped yesterday and is currently edging below the 5440 (R1) support line now turned to resistance. We tend to maintain a bearish outlook for the index given also the downward trendline guiding it. Should the selling interest be maintained we may see S&P 500 paving the way for the 5200 (S1) support line. Should the bulls take over, the index is expected to break the 5440 (R1) resistance line the prementioned downward trendline and pave the way for the 5650 (R2) level.