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by Darius Anucauskas

UK To Release Its Employment And Earnings; Jerome Powell In The Spotlight Tonight.

During the early Asian morning, New Zealand released their inflation figures, where they missed the QoQ and the YoY numbers by a tenth of a percent. The headline CPI on QoQ for Q2 came out at +0.4% versus the expected +0.5%. Just to remind everyone, the previous figure for Q1 was at +0.5%.

The year-on-year headline inflation number came out with a small disappointment as well, at +1.5% versus the +1.6% expected. Nevertheless, investors still saw this as a somewhat positive outcome, as it was well above the previous +1.1% for Q1. Also, the new figure keeps the rate within the frames of the New Zealand central bank’s target, which is between 1 and 3 percent.

Yesterday, we also had the US retail sales numbers for the month of June. Both headline and core came out in line with expectations at +0.5% and +0.4%, respectively. Nevertheless, comparing them to the previous numbers of +1.3% for the headline and +1.4% for the core, this is quite a hefty decline, which is why the USD could not pick up its pace yesterday and moved lower against its major counterparts.

Something to keep in mind, in regards to the US retail sales, is that when the numbers rise, then they tend to correlate with economic growth. In a market like the US, consumer spending almost accounts for 70% of economic growth.

As for today’s events, the UK will be delivering their employment figures and average earnings. This morning we will see how the labour market has performed in May. The figure to come out is expected to be in line with the previous at 4.2%. This is the lowest it has been at least for a decade. Certainly, with the reports coming out that there is a shortage of skilled workers, no wonder the jobless rate is low.

Also, we will get the UK average earnings numbers at the same time as the unemployment figure comes out. The average earnings excluding bonuses is expected to drop by a tenth of a percent, going from +2.8% to +2.7%, whereas the number including bonuses is expected to have remained the same at +2.5%.

In addition to other events today, we have Jerome Powell to deliver his semi-annual monetary policy testimony before the House Committee and the Senate. The text should be released about 90 minutes before his speech. This will be heavily monitored, as at its previous meeting, the FOMC decided to increase the interest rate by 25 bps. According to the Fed funds futures, the market currently assigns an 85% chance for the next hike to occur in September, while there is a 55% probability for the Committee to deliver another one in by December.

GBP/USD – Technical Outlook

GBP/USD continues to trade in a sideways manner between the 1.3100 and 1.3300 levels. Certainly, judging by the 4-hour chart, the pair started creating higher lows, which could interest bulls more to join in and lift GBP/USD towards higher levels. But at the same time, knowing that the 1.3300 area proved to be a strong resistance zone, we will have to stay careful with the upside potential. Until the pair decides to move out of that range, we will remain neutral.

On the upside, if GBP/USD moves higher and breaks the 1.3300 level, this could open the path towards the next key area of resistance at 1.3365, marked by the high of 9th of July. If that level is not able to withhold the rate from accelerating further, the next potential area of resistance could be the 1.3450 hurdle.

On the downside, if the pair decides to drop to its yesterday’s low at around 1.3215 and eventually breaks it, this could be a sign for more bears to step in and drive the pair towards the previously mentioned 1.3100 level. This is where the rate could stall for a while, as the bulls could try and fight back. But if the bears end up being stronger, then a further drop to the 1.3050 zone could be possible.

USD/JPY – Technical Outlook

USD/JPY is still above its mid-term upwards moving trendline taken from the low of the 25th of March, which is a positive sign. But from the short-term perspective, the pair is stuck between the 112.17 and 112.80 levels. In the short-run, we could see a drop lower to test some key support levels or even the aforementioned trendline. Nevertheless, until that trendline is intact, the outlook could still be seen as positive. 

For now, we will continue to monitor the previously mentioned short-term range between the 112.17 and 112.80 levels, but remain somewhat positive in the short run. If USD/JPY decides to make a move towards the upper side of that range and eventually break it, this could open the door towards the 113.40 barrier, where the pair could stall for a while. The barrier could be tough to overcome as it acted as strong resistance on the 8th of January.

On the downside, a break below the 112.17 level could interest a few more bears to jump in and drive the pair lower towards the next key area of support at 111.40, marked by the peak of May. A further drop below that level opens the path for a test of the abovementioned upside trendline that could initially stop the falling. This is where the big battle, over the faith of USD/JPY, between the bulls and the bears could start again.

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