Preliminary PMIs, Turkey’s CBT interest rate decision and Japan’s inflation

The USD seems to have gotten some support from the release of the Fed’s last meeting minutes. The document showed a predisposition to keep rates high to ensure the return of the CPI rates to the banks’ 2% target. The contents of the document practically contradicted the market’s expectations and forced it to reposition itself, thus supporting the USD and at the same time weighing on gold’s price and forcing US stock markets to end the day mixed.

During tomorrow’s Asian session, we highlight the release of Japan’s CPI rates for April. The core rate is expected to slow down from 2.6% yoy to 2.2% yoy. The release is gaining attention as the main factor behind the weakening of the JPY remains the loose monetary policy of the BoJ.

Should the headline CPI rate slow down and be accompanied also by an easing of inflationary pressures at a core level, it may prove difficult for BoJ to continue with its monetary policy normalisation and thus in such a scenario, the release could weigh on the JPY, as the bank’s narrative will be contradicted.

On a technical level we note the timid strengthening of the USD against the JPY yesterday, as USD/JPY broke the 156.55 (S1) resistance line, now turned to support. The possibility of a bullish outlook has been rising, as the price action seems to maintain an upward direction over the past five days and the RSI indicator is rising in a similar timid fashion, over the reading of 50, implying that the bullish sentiment among market participants for the pair is building up.

Should the buying interest be enhanced for the pair we may see it start aiming for the 158.35 (R1) resistance line, while even higher we note the 34-year high level at 160.35 (R2) resistance level. On the flip side should sellers take over the lead for the direction of the pair, we may see USD/JPY breaking the 156.55 (S1) support line and take aim of the 153.80 (S2) support level.  

Today we note the release of the preliminary PMI figures for May and we intend to concentrate on the Eurozone and especially the “problem child” of the area, Germany’s manufacturing sector. Overall, the readings of the indicators are expected to improve implying thus an improvement of economic activity which could provide some support for the common currency. On the other hand, Germany’s manufacturing sector’s indicator is expected to remain below the reading of 50, implying another contraction of economic activity, which could moderate any bullish reactions for the EUR.

EUR/USD edged lower yesterday reaching the midst of the corridor set by the 1.0890 (R1) resistance line and the 1.0740 (S1) support level. The main characteristic of yesterday’s drop though may have been the breaking of the upward trendline initiated since the 1^a. of May.

Also the RSI indicator dropped nearing the reading of 50 implying the fading away of bullish tendencies within the market for the pair. Hence for the time being, we switch our bullish outlook in favour of a sideways motion between the prementioned levels. Should the bulls take over, we may see the pair breaking the 1.0890 (R1) line and take aim of the 1.1010 (R2) level. For a bearish outlook we require the pair to break the 1.0740 (S1) line and aim for the 1.0615 (S2) level.   

Last but not least we also note the release from Turkey of CBT’s interest rate decision the bank is expected to remain on hold at 50%, yet inflation in Turkey remains high and such an action may disappoint traders weighing on the Lira.

Other highlights for the day

Today we note the release of UK’s preliminary PMI figures for May, while later we get from the US the weekly initial jobless claims figure, the S&P preliminary PMI figures for May and the New Home sales for April, while Atlanta Fed President Bostic and RBNZ Governor Orr are scheduled to speak. During tomorrow’s Asian session, we note the release of New Zealand’s April Trade data and UK’s GfK Consumer confidence for May.

USD/JPY Daily Chart

• Support: 156.55 (S1), 153.80 (S2), 151.90 (S3)
• Resistance: 158.35 (R1), 160.35 (R2), 162.50 (R3)

EUR/USD Daily Chart

• Support: 1.0740 (S1), 1.0615 (S2), 1.0450 (S3)
• Resistance: 1.2760 (R1), 1.2890 (R2), 1.3000 (R3)

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