Today, the European morning will start off with the UK’s CPI figures for the month of June. Also, UK will release the Retail Price Index numbers and the PPI Output figures for the month of June. Just half an hour later, the eurozone will present its inflation numbers, both headline and core. An hour before the US opening bell, the United States will deliver its housing and building statistics. At the same time as the US data comes out, Canada will release its inflation numbers for the month of June.
Today, the European morning will start off with the UK’s CPI figures for the month of June. The country will provide us with its MoM and YoY numbers, which, so far, are expected to have remained the same as the previous month’s. The headline MoM is forecasted to come out at +0.3%, whereas the headline YoY number is expected to be +2.0%. This figure is inline with the Bank of England target, which is +2.0%. But according the BoE, they expect CPI to fall below +2.0% again by the end of the year, which would reflect the recent fall in energy prices. In addition to the headline CPI numbers, UK will provide us with the core inflation figures, which excludes energy, alcohol and tobacco prices. The core MoM is expected to have stayed the same, at 0.0%, whereas the YoY one is believed to have gone up from +1.7% to +1.8%. If so, this would also be good for the BoE, as it brings the core CPI closer to their target.
Also, UK will release the Retail Price Index numbers and the PPI Output figures for the month of June. The YoY Retail Price index is believed to have ticked down by a tenth of percent (from +3.0% to +2.9%), but the PPI Output is expected to have declined slightly, from +1.8% to +1.7%. Given that the British pound continues to feel the heat from the sellers, especially after the yesterday’s sell-off, if data comes out slightly better than expected, or at least in line with expectations, we could see GBP recovering some of its lost grounds. It doesn’t mean that the pound could set sail north in the near term, but to see some recovery might be a possibility.
Just half an hour later, the eurozone will present its inflation numbers, both headline and core. The headline MoM and YoY are expected to have stayed the same, at +0.1% and +1.2% respectively. But the core CPI on a YoY basis is forecasted to come out at +1.1%, which better than the previous one at +0.8%. If the YoY numbers for both, headline and core, come out as expected, this would be somewhat in line with the ECB’s inflation target. The Bank is aiming to have CPI below, but still close to +2.0% over the medium term. If the numbers come out better than expected, this might give a good boost to the damaged euro against a basket of other major currencies.
From around mid-March, GBP/JPY has been on gradual decline, which doesn’t seem to end. From the short-term perspective, yesterday’s strong decline may get a follow-through today, especially if the rate falls below yesterday’s low, at 133.90. In addition to this, we can see that the rate is balancing below a short-term tentative downside resistance line, which also adds a bit of a negative spin on the short-term outlook. This is why, for now, we remain somewhat bearish.
A drop below the 133.90 hurdle would confirm a forthcoming lower low and the rate may slide further, targeting the 133.45 area, marked by the low of November 11th, 2016. If the bear-pressure persists, a break of that area might bring the rate towards the lowest point of this year, which is at 132.45, marked by the low of January 2nd.
On the other hand, if GBP/JPY makes a strong reversal back to the upside and breaks above the aforementioned downside line and climbs above the 135.25 zone, this could raise concerns in the bear-bloc about their capabilities of pushing the pair down in the short run. The next potential target could be the 136.25 hurdle, which is the high of July 9th. But if that level is no-match for the bulls, they could easily push GBP/JPY towards the 200 EMA, which also coincides with the 136.75 obstacle, marked by the low of July 1st.
An hour before the US opening bell, the United States will deliver its housing and building statistics. According to some sources, the June Housing Starts from the MoM perspective are believed to have risen from the previous -0.9% to +1.9%. But some economic calendars, do not have any forecast in regard to that indicator. The MoM Building Permits are expected to have fallen from +0.3% to +0.1%. If the number comes out as forecasted, this means that in the past month, the government did not issue many new Building Permits, which will have its effect on the next Housing Start data release the next month. That said, we do not believe this data could drastically affect the USD today, hence why we won’t put too much emphasis on those numbers.
At the same time as the US data comes out, Canada will release its inflation numbers for the month of June. The headline figure on a YoY basis is believed to have ticked down by 4 tenths of a percent, from +2.4% to +2.0%. But unlike the headline, the core CPI on a YoY basis is believed to have risen from +2.1% to +2.6%. Let us remind ourselves that the core number excludes energy and food from its calculation. Even if the numbers come out slightly different, but not far from the forecasts, this still pleases the Bank of Canada, as their aim to keep inflation between 1 and 3 percent.
Given such a difference between the headline and the core forecasts, we believe that the recent slide in energy prices could be weighing in on the headline number. The Canadian dollar, lately, has been on the stronger side against its major counterparts, so if the expected figures disappoint slightly, we may see CAD selling off a bit against some currencies, like USD or EUR.
Although overall, USD/CAD is still within a downtrend, from the shorter-term perspective, we can see that the pair managed to find good support near the 1.3020 area. The level helped the rate to rebound and push higher. Given the US dollar’s strong recovery from the beginning of this week, there is a chance to see USD/CAD moving a bit higher again, but only up until the short-term tentative downside resistance line taken from the high of May 31st. If that line holds the rate down again, this move higher could be considered as a temporary correction before another leg of selling.
A push above a key resistance area, at 1.3090, marked by the high of July 11th, could open the door to a further uprise, where the pair could target the 1.3145 barrier, marked by the highs of July 1st and 10th. Slightly above it runs the aforementioned downside line, which may provide additional resistance for the rate. If that line continues to hold, this could invite the bears back into the game and USD/CAD might fall back down again, possibly bypassing the 1.3090 obstacle and aiming for the 1.3020 level again, marked by last week’s low.
Alternatively, if the previously-discussed downside line breaks and the pair travels above the 1.3196 barrier, marked by the high of June 26th, this might attract even more bulls into the field and we could see the rate getting lifted further. The next potential resistance area may be near the 1.3230 zone, marked by the high of June 21st. USD/CAD might initially stall around there, or even correct back down a bit. But if the rate remains above the aforementioned downside line, we will stay positive over the pair’s short-term outlook. Another push higher and a break above the 1.3230 obstacle could clear the way to the 1.3300 mark, which is the low of June 13th.
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