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by Darius Anucauskas

Risk-off Mode Back On; UK and US Retail Sales Are In Focus

If on Tuesday the markets welcomed the delay in US tariffs on certain Chinese goods until mid-December and switched to a risk-on mode, then on Wednesday the traders and investors discounted all of that and jumped back into safe-haven assets, as they fled the riskier ones. The UK and the US will deliver their retail sales data for the month of July.

Market Jumped Back Into The “Risk-off” Environment

If on Tuesday the markets welcomed the delay in US tariffs on certain Chinese goods until mid-December and switched to a risk-on mode, then on Wednesday the traders and investors discounted all of that and jumped back into safe-haven assets, as they fled the riskier ones. The equity markets sold off significantly. Everything started off with the slide in the European indices, which passed on the torch to the US equity markets, as they moved deeper into the red.

A few major US department store stocks, like Macy’s and Nordstrom, took a big hit yesterday, when the first one dropped around 15% by mid-day. In addition to that, the yields on the US Treasury bonds have inverted (the 2-year bond rose above the 10-year one), which investors always took it as a sign of an upcoming recession.

In addition to other yesterday’s bad news, Chinese retail sales on a YoY basis for the month of July slid from +9.8% to +7.6%, although the expectation was for the number to drop to +8.6%. Yesterday, Germany produced its preliminary GDP YoY figure, which came out slightly better than expected, at 0.0%. That said, it was still well below the previous one, which was at +0.6%. But the dissapointment was in the QoQ figure, which came out -0.1%, which is well below the previous +0.4%. This is seen as worry sign that the German economy is slowing down too fast.

Sweden showed us their inflation numbers for the month of July, which have beaten expectations. Both, the MoM and YoY figures, have beaten their forecasts by two tenths of a percent. The MoM rose to +0.4%, when the previous -0.1%, where the expectation was to be only at -0.2%. The YoY number also came out at +1.7%, which was better than the expected +1.5%, but still worse than the previous reading, at +1.8%. This could have been the reason why we saw the Swedish krona initially strengthening on the release, but then selling off against its major counterparts. The YoY inflation is very close to Riksbank’s inflation target at +2.0%. That said, given that the number slid slightly, this did not make the Swedish bank more relaxed. Further declines in inflation might postpone the Bank’s plans to raise interest rates by the end of this year.

Another country that produced its inflation data for July was UK. The MoM and YoY numbers came out better than expected. The expectation for the MoM figure was to come out slightly negative, at -0.1%, but the actual number 0.0%. The YoY one was believed to show at +1.9%, but instead the actual number overshot that estimate by two tenths of a percent and came out at +2.1%. But the pound ended the day mixed against it major counterparts. GBP rose against all of the G10s, except for the yen, Swiss franc and the US dollar. Those have been the strongest against the pound in that order.

This morning, Australia released its employment data, which showed great results on the labour market front. The country’s unemployment rate stayed the same, at 5.2%, but it managed to add around 41000 new jobs to their economy.  AUD-traders took the news quite well, as the currency accelerated against all of its major counterparts. That said, the currency could still remain under pressure, as it is vulnerable to all the developments surrounding China-US trade talks. Also, AUD might have got a boost for now, but this move could be temporary, as there are still speculations of a possible rate cut by the RBA. 

Norwegian Interest Rates and Retail Sales From UK and US

Today, the spotlight falls on the Norges Bank, which is set to announce their interest rate. According to the market forecasts, no changes are expected there. The rate is believed to have stayed the same, at +1.25%. But the Norwegian central bank is still not excluding the possibility of hiking its rate by the end of this year.

Just half an hour after the Norwegian rates are announced, the UK will release their retail sales number for July. Both core and headline figures are believed to have dropped. The core MoM and YoY readings are expected to go from +0.9% and +3.6% to -0.2% and +2.6%, respectively. The headline MoM and YoY figures are expected to fall from +1.0% and +3.8% to -0.2% and +2.6%, respectively. If everything comes out as forecasted, this might be seen as a decent slide, which could make the GBP-traders worry about the pounds ability to move higher, at least in the near term. If we get a bit better readings, but still below the previous ones, this may initially have a positive effect on the currency and it may rise a bit, but once the market participants digest everything and see that the numbers are still not very satisfying, GBP might come under selling interest again.

Today, the US will also provide us with their retails sales numbers and how they performed in July. It is believed that the core MoM figure has remained the same, at +0.4%, whereas the headline MoM number is forecasted to have slid by a tenth of a percent, from +0.4% to +0.3%. We also get the initial jobless claims number, which is believed to have risen slightly to 214k from the previous 209k. Other important data to watch from the US today are the industrial production figures on a MoM and YoY basis for July. The first one is expected to have increased from the previous 0.0% to +0.1%. The forecast for the YoY number is believed to have ticked down by a tenth of a percent, from+1.3% to +1.2%. Given the amount of various data from the US, we will keep a close eye on USD, as worse than expected numbers might force the currency to depreciate slightly. If so, the move might still be just a short-term reaction, as USD could stay mainly affected by the Fed and the ongoing trade talks.

AUD/USD – Technical Outlook

Although from the medium-term perspective, AUD/USD is still within a downtrend, from a shorter-term picture shows us that the pair is stuck within a range, roughly between the 0.6745 and 0.6818 levels. For now, we will remain neutral and wait for a clear break through one of the sides of the range, in order to consider a further short-term directional move.

If the rate drops below the lower bound of the range, at 0.6745, this could also push AUD/USD further down, below the 0.6735 hurdle, marked by the low of August 14th. This way we could start examining the next possible obstacle, at 0.6711, which could provide some initial support. The rate may rebound from there, but if it struggles to climb back above the 0.6745 zone, this may trigger another round of selling, potentially leading the pair below the 0.6711 area and aiming for the 0.6677 level, marked by the low of August 7th.

Alternatively, if AUD/USD breaks above the upper side of the range, at 0.6818, this my invite a few more buyers into the game and the pair may travel to the 0.6868 barrier, which could provide some resistance, as it did on August 1st. The rate might correct slightly lower from there, but if it remains above the 0.6818 hurdle, this could initiate another leg of buying. If AUD/USD climbs higher again and breaks above the 0.6868 barrier, this may set the stage for a test of a test of the 0.6897 level, marked near the high of July 31st.

AUDUSD 4hour

GBP/NZD – Technical Outlook

Overall, GBP/NZD is still on a downtrend that’s running from the beginning of May. But from a shorter-term perspective, the pair keeps on forming higher lows, while trading above a short-term upside support line drawn from the low of July 30th. As long as that line stays intact, we will remain somewhat positive for now. That said, to get a bit more comfortable with higher areas, ideally, we will wait for a clear break through yesterday’s high.

A push above the 1.8813 may attract more attention among buyers, as more of them could join in and drive the pair to the 1.8874 hurdle, which is the high of August 8th. The rate could initially stall there for a bit, but if the buying is still strong, the next potential resistance area to watch out for could be the 1.9020 mark, which is the intraday swing high of August 7th.

On the downside, if the aforementioned upside line breaks, this could make the bulls worry about their chances of pushing the pair higher in the short run. If the pair falls below the 1.8638 hurdle, marked by yesterday’s low, this could send the rate further south, aiming for the 1.8588 zone. If the selling doesn’t stop there, a further move down may bring GBP/NZD to the 1.8483 level, marked by the intraday swing low of August 6th, or even the 1.8428 hurdle, which is the low of the same day.

GBPNZD 4hour

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