Core PCE price index for June in focus

The USD remained relatively stable against its counterparts yesterday. It should be noted that the US GDP advance rate for Q2 accelerated substantially beyond the market’s expectations, in a positive signal for the US economy. We estimate that the release strengthens the Fed’s narrative for a possible soft landing of the US economy, something that some market analysts had doubted. Nevertheless, despite the release providing some leeway for the Fed to keep rates high for longer yet market expectations for the Fed to start cutting rates in the September meeting are high. The release provided some support for the USD at the time of the release, yet the gains were quickly erased. Please note that at the same time, we also got the US weekly initial jobless claims figure, which came in lower than expected, implying a relative tightness of the US employment market. Attention today, is expected to fall on the release of the US Core PCE price index for June and a possible slowdown of the rates, implying easing inflationary pressures in the US economy could weigh on the USD as it would enhance the calls for the Fed to start cutting rates.

EUR/USD remained relatively unchanged yesterday, yet rose somewhat during today’s Asian session approaching the 1.0890 (R1) resistance line. The pair has put the downward trendline guiding it for the past week to the test and should the trendline be broken we would switch our bearish outlook in favour of a sideways motion initially. Please note that the RSI indicator remains near the reading of 50, implying a rather indecisive market, which in turn could favour a stabilisation of the pair’s price action. Should the bears maintain control over the pair’s direction we may see EUR/USD aiming for the 1.0740 (S1) support line. For a bullish outlook we would require the pair to initially break the prementioned upward trendline in a first signal that the downward motion has been interrupted, continue to break the 1.0890 (R1) resistance line clearly and start paving the way for the 1.1010 (R2) resistance level.

Despite a correction lower yesterday JPY is about to end the week in the greens across the board as it is set to strengthen against the USD, EUR and GBP. The release of Tokyo’s CPI rates for July, tended to send out mixed signals as on the one hand, the core rate ticked up, while at the same time, the headline rate ticked down. The overall picture though is that inflationary pressures remain present in the Japanese economy and that may provide additional arguments for BoJ to proceed with another 10-basis points rate hike in its meeting next week. It should be noted that the markets are pricing in a possible rate hike in its next meeting, yet JPY OIS also imply another rate hike in the October meeting. On the other hand, we have to note that the considerable strengthening of JPY over the past three weeks, tends to ease the pressure on BoJ to hike rates in its coming meeting.

Despite a correction higher, during yesterday’s American session, USD/JPY seems to maintain its bearish tendencies as it remains below the 154.60 (R1) resistance line. Also the fact that the price action remains well below the downward trendline guiding it tends to reinforce of bearish outlook as does the RSI indicator which is currently at the reading of 30, implying a strong bearish sentiment among market participants, yet may also imply that he pair is at oversold levels and ripe for a correction higher. 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.

Other highlights for the day

Today we note in the European session, we get France’s consumer confidence for July. In the American session, we get from the US the Consumption rate for June as well as the final University of Michigan consumer sentiment for July.