Middle East conflict escalates

The USD remained unchanged against its counterparts on Friday yet seemed to edge lower during today’s Asian session. Market worries tend to intensify as the conflict in Israel escalates and threatens to substantially overspill to Lebanon as well, creating inflows for safe-haven instruments. Yet the markets are also preparing for a packed week ahead, full of high-impact financial releases, which is expected to increase volatility in the FX market. On the fundamental side, given today’s light calendar we note the speech of UK Finance Minister Rachel Reeves, which could affect the sterling on a fiscal level.

USD/JPY edged lower on Friday hitting a ceiling at the 154.60 (R1) resistance line and continued lower today. We intend to maintain a bearish outlook for the pair as long as the downward trendline remains intact, yet note the pair’s difficulty to break the 151.90 (S1) support line and form a lower peak than the S1. We also note that the RSI indicator continues to run along the reading of 30 highlighting the strong bearish sentiment of the market for the pair, yet may also imply that the pair is at oversold levels. For now we note that the price action has some distance from the lower Bollinger Band which could allow the bears some room to play. Should the selling interest be maintained we may see the pair breaking the 151.90 (S1) support line and aiming for the 148.90 (S2) support level. For a bullish outlook, we would require the pair to break initially the prementioned downward trendline, in a first signal that the downward motion has been interrupted continue to break the 154.60 (R1) resistance line and taking aim of the 157.60 (R2) resistance level.

Cable seems to have stabilized somewhat just below the 1.2890 (R1) resistance line. GBP/USD downward movement seems to be threatened and the possibility for a stabilization of the pair seems to be enhanced ass the RSI indicator remains near the reading of 50 implying a rather indecisive market. Should the bearish sentiment be renewed we may see the pair aiming for the 1.2760 (S1) support level. Should the bulls take over, we may see the pair breaking the 1.2890 (R1) resistance line, paving the way for the 1.3045 (R2) resistance base.

Other highlights for the day

Today we note in the European session the release of Sweden’s preliminary GDP rate for Q2, Germany’s retail sales for May and UK’s distributive trades for July. In the American session, we get from the US the Dallas Fed manufacturing business index for July. During tomorrow’s Asian session, we get Australia’s June building approvals and retail sales growth rates.

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On Tuesday, we get France’s preliminary GDP rate for Q2, Switzerland’s KOF Indicator figure for July, the Czech Republic’s GDP rate for Q2, Germany’s and the Eurozone’s preliminary GDP rates for Q2, followed by the Eurozone’s economic sentiment figure, Germany’s preliminary HICP rate and the US consumer confidence figure all for July and the US JOLTS Job openings figure for June. On Wednesday we get Japan’s preliminary industrial output rate for June, followed by China’s NBS manufacturing PMI for July, Australia’s CPI rate for Q2, France’s and the Eurozone’s preliminary HICP rates and the US ADP employment figure all for July, and Canada’s final GDP rate for May while the highlight may be the release of the Fed’s and BoJ’s interest rate decisions. On Thursday we get Australia’s trade data for June, China’s Caixin manufacturing PMI figure and the UK’s nationwide house prices rate both for July, the US weekly initial jobless claims figure, Canada’s manufacturing PMI figure and the US ISM Manufacturing PMI figure both for July as well as BoE’s and CNB’s interest rate decisions on Thursday. On Friday, we start with Australia’s PPI rate for Q2, Switzerland’s CPI rate for July and the highlight of the week which is the US employment data for July whilst the US Factory orders rate for June brings the week to a close.