Japanese yen and dollar to a lesser extent are lifted as China stocks ended the three days rebound and dropped nearly 2.5% today. In addition, yen is supported by the sharp reversal in treasury yield yesterday, which saw yield on 10 year note rose sharply to 3.61% before closing down by -0.06% at 3.494%. The development in yen crosses argues that three wave corrective rise since last week was over, considering that GBP/JPY is now back pressing last week's low of 153.43. We'd anticipate some more strength in yen going forward today which might also give the greenback some support.
One of the important factors that could change the above anticipated development is the release of Conference Board Consumer Confidence from US, which is expected to improve to 48 in August. The index bottomed at 25.3 in Feb, then surged to 54.8 before stabilizing below 50. Stabilization between last month's low of 46.6 and May's high of 54.8 will be welcomed by the markets but any surprise that swing the reading beyond this range will likely rock the sentiments of investors.
In most cases, Sterling will continue to be the weaker major currency and might extend recent loses. EUR/GBP has already taken the lead by breaking through key near term resistance yesterday and edged higher to 0.8734 today and remains firm there. GBP/JPY is back pressing last week's low of 153.43 and might be resuming recent fall too. GBP/USD had the weakness rebound last week and has taken out an intraday pattern support of 1.6375 in early European session and might be heading to retest 1.6274 low too.
Economic data released today saw Germany GDP finalized 0.3% growth in Q2. Swiss employment level was basically unchanged at 3.95M level. US S&P/Case-Shiller Composite-20 is expected to drop less by -16.4% yoy in June. House price index in US is expected to rise slightly by 0.4% mom in June.
Dollar index's recovery from 77.76 continues today with 4 hours MACD staying above signal line. While some more upside might be seen, short term outlook remains bearish as long as 78.67 minor resistance holds. The current fall from 79.51 is possibly resuming whole decline from March high of 89.62 and might extend further to 77.43 and below. Nevertheless, strong support is expected above 75.89 key medium term level that finally bring reversal to conclude whole fall from 89.62 as well as medium term consolidation from 88.46. Break of 78.67 will be an important sign of stabilization and turn short term outlook neutral while break of 79.51 will revive the case that the index has already bottomed out at 77.43 already.
GBP/JPY Daily Outlook
Daily Pivots: (S1) 154.41; (P) 155.61; (R1) 156.41; More
GBP/JPY was once again limited by 4 hours 55 EMA and weakened again and is now back pressing 154.34 low. Break there will confirm that whole fall from 164.05 has resumed and should target key support level of 146.75 next. On the upside, while consolidation from 153.43 might still continue and another rise cannot be ruled out, it should be limited below 160.34 resistance and bring fall resumption.
In the bigger picture, as discussed before, rise from 118.81 is treated as correction to the larger down trend from 07 high of 251.90 only. We're slightly favoring the case that such correction has completed at 163.05 already with bearish divergence conditions in daily MACD and RSI. Firm break of 146.75 support will confirm and will turn outlook bearish for 118.81 low and beyond. On the upside, in case of another rise, upside is expected to be limited by 50% retracement of 215.87 to 118.81 at 167.34 to conclude such correction and bring reversal finally.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 3:00 | NZD | RBNZ 2-Yr Inflation Expectation Q3 | 2.30% | -- | 2.20% | |
| 6:00 | CHF | UBS Consumption Indicator Jul | 0.77 | -- | 0.96 | 0.95 |
| 6:00 | EUR | German GDP Q/Q Q2 F | 0.30% | 0.30% | 0.30% | |
| 7:15 | CHF | Employment Level Q2 | 3.95M | 3.956M | 3.957M | |
| 13:00 | USD | S&P/Case-Shiller Composite-20 Y/Y Jun | -16.40% | -17.10% | ||
| 14:00 | USD | Consumer Confidence Aug | 48 | 46.6 | ||
| 14:00 | USD | House Price Index M/M Jun | 0.40% | 0.90% | ||
| 14:00 | USD | House Price Index Y/Y Jun | -- | -19.07% |
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