In the early hours of the Asian morning today, we got some important economic data from New Zealand. The country produced its inflation numbers on a YoY and QoQ basis. The Reserve Bank of Australia stepped in with the minutes from its previous meeting. During the European morning we will be getting some individual important data sets from a few of the EU states.
During the European morning we will be getting some individual important data sets from a few of the EU states. First, it will be UK’s turn to deliver its job numbers. The country is set to show if it managed to maintain May’s unemployment rate at the same level as the previous two months, at 3.8%. The figure has been on a steady decline for a few years now, since it peaked in 2012. Now the question is at what level will it change its direction and move to the upside? In addition to that, UK will release the average hourly earnings including bonus number, which is expected to have remained the same in May, as in the month before, at +3.1%. But the one excluding bonus is believed to have ticked down by a tenth of a percent and is forecasted to come out at +3.4%. If the figures come out as expected, it might not have a strong reaction in the pound, as traders might have taken this information into account already. The slightly worse numbers could make investors worry again, as recent UK economic data releases, like the manufacturing and services PMIs, came out worse than expected.
Yesterday, the governor of the Bank of England, Mark Carney, said that, quote: "We have the flexibility to respond to circumstances in either direction - stronger growth or weaker inflation - if necessary,". This was Carney’s respond to a question, if UK could withstand a potential threat of a recession and what would the BoE do, in order to help support the economy. In addition to this, he also said that Britain’s current financial system is able to withstand any Brexit related shocks.
After UK, it will be Germany’s turn to show, how its economy is feeling right now and what is the current sentiment among institutional investors. The July German ZEW Current Conditions figure, which shows the expectations for economic growth in the next 6 months, is believed to have slid to 5% from the previous 7.8%. The German ZEW Economic Sentiment number is believed to have stayed the same as the one before, at -22.1. If both come out better than the forecast, the common currency might get a small boost and appreciate against some of its other major counterparts. That said, the rise could be short-lived, as the euro has not been the strongest lately.
In the early hours of the Asian morning today, we got some important economic data from New Zealand. The country produced its inflation numbers on a YoY and QoQ basis. Both figures came out with no surprise, at +1.7% and +0.6% respectively. The YoY number is still within the Reserve Bank of New Zealand inflation target range, which is between 1 and 3 percent. The Bank tries to keep inflation around +2%, which is slightly above the up-to-date reading of +1.7%.
NZD-traders took the data well, but only lifted the currency a bit against its major counterparts. Probably, the global tensions and uncertainty between the two economic giants, China and the US, are weighing in on the currency.
After New Zealand was done with the CPIs, the Reserve Bank of Australia stepped in with the minutes from its previous meeting. A few important takings from those minutes were, that RBA will adjust its policy “if needed” in order to support the growth of the economy. The board will continue to closely monitor the labour market and keep the wage growth at necessary levels. Also, the Bank wants to keep borrowing costs on the downside for consumers, as funding costs for the big Australian banks reached historic lows.
Members of the RBA board understand that, lately, the main domestic economic news was regarding the labour market and housing. As we know, during the last meeting, RBA has cut its rates to a new record minimum at +1%. The Bank is willing to continue stimulating consumer spending, which has been relatively flat recently. The third rate cut by 25bps could still be on the table, if the economic data starts weakening and if RBA believes that it is a necessary measure to continue supporting consumer spending and business growth. Of course, such activity might not play well for the Australian dollar, which is currently showing decent results.
During the early hours of the Asian morning today, we saw NZD/CHF climbing above its key barrier, at 0.6623, marked by the highs of July 4th and 15th. At the same time, the pair is still balancing above a short-term tentative upside support line drawn from the low of June 24th. That said, given that pair had already a good run to the upside from the shorter timeframe perspective, we are not excluding a small throwback at some stage. For now, we will remain cautiously-bullish and aim for higher areas.
A strong push above the 0.6640 area, which marks the highs of May 14th and 16th, could increase the pair’s chances of moving further north, where the next potential resistance zone could be seen around the 0.6663 hurdle, marked by the low of May 9th. We could see the rate stalling around there, or even correcting back down. If the slide is short-lived, the bulls could quickly pick up on this and drive NZD/CHF to the upside again. Such a move might bypass the 0.6663 obstacle, a break of which could open the door to the 0.6685 level, marked by the intraday swing high of May 10th.
Alternatively, a drop back below the 0.6623 zone could make the bulls worry in the short run, as the may could lead to a small correction back down. This is when we will target the 0.6603 hurdle, or the 0.6593 mark, where the last one is the intraday swing high of July 12th. If the 0.6593 obstacle fails to withstand the bearish pressure and breaks, slightly below runs the aforementioned upside line, which may provide additional support for the rate.
GBP/AUD continues to slide, trading below a short-term tentative downside resistance line taken from the high of June 25th. The pair is also balancing on its key support area at 1.7770. Given that the pair is quite oversold on the shorter timeframes, there is a possibility to see a small correction to the upside. But as long as the above-mentioned downside line remains intact, we will continue aiming lower, at least for now.
If the pair rebounds from the 1.7770 hurdle, this could help the rate to accelerate a bit higher, where it may aim for the 1.7860 zone, marked near the lows of July 4th, 5th and 14th. Slightly above is the aforementioned tentative downside line, which could provide additional resistance and keep GBP/AUD down. If this happens, the pair could be met with another leg of selling, potentially bringing it back to the 1.7770 area. If that area fails to withstand the bears this time, a break of it could clear the path to the next possible support level, at 1.7672, marked by the intraday swing low of January 11th.
On the other hand, if the previously-mentioned downside line fails to keep the rate down, its break could open the door to some higher areas. But in order to get more comfortable with further upside, a push above the 1.7920 barrier could attract more buyers into the game. This is when we will target the 1.7960 obstacle, or even the 1.8000 mark, which could slow the acceleration down. GBP/AUD could pullback down a bit, but if the buyers are still feeling comfortable, they could take control again and push the rate beyond the 1.8000 mark and target the 1.8040, which is the high of July 10th.
Later in the day, from the US, we get retail sales, industrial and manufacturing production, all for June. Headline and core retail sales are forecast to have slowed to +0.2% mom and +0.1% mom respectively, after both rising to +0.5% in May. IP is expected to have slowed to +0.1% mom from +0.4%, while MP is anticipated to have risen +0.2%, the same pace as in June.
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