As was widely expected, BoJ maintained its interest rate at -0.10%, which caused little reaction on the JPY. The bank also left unchanged the guidance on interest rates, as it will keep current extremely low rates through spring 2020, maintaining an ultra-lose policy. It should also be noted that the bank lowered its forecast for the medium core CPI rate for 2019 at +1.0% yoy, if compared to prior forecast of +1.1% yoy. Yet inflation is expected to gradually accelerate toward +2.0% yoy. BoJ also mentioned that the it sees risks skewed to the downside for the economy and it won’t hesitate to take additional leasing if momentum to goal is lost. The markets may have been an even more dovish accompanying statement as at the time of the release, JPY momentarily strengthened against the USD. USD/JPY rose above the 108.60 (S1) support line yesterday, yet took a bearish turn during today’s Asian session, aiming for the upward trendline incepted since the 19th of July. For us to switch our bullish bias in favor of a sideways scenario, we would require the pair to clearly break the prementioned upward trendline. Should the bears dictate the pair’s direction, we could see it breaking the prementioned upward trendline, the 108.60 (S1) support line and aim for the 107.90 (S2) support barrier. Should the bulls take over, we could see the pair aiming if not breaking the 109.15 (R1) resistance line.
GBP falls to 2017 levels against the USD
Cable continued to drop yesterday, reaching the lowest level since March 2017, as the danger of a hard Brexit weighed on the pound. The new UK government seems to be hardening its stance towards the EU, about Brexit as preparations are made for a hard Brexit. It should be noted that the UK Government does no longer work under the assumption of an orderly withdrawal from the EU. According to media, Boris Johnson is not willing to restart talks unless the EU agrees to reopen the divorce deal which had been struck with Theresa May. Also, the Irish backstop continues to form a substantial obstacle in agreeing Brexit. We expect the pound to continue to be under pressure from the possibility of a hard Brexit, as well as BoE’s meeting on Thursday. Cable continued to drop for a fourth consecutive day, breaking the 1.2290 (R2) and the 1.2210 (R1) support lines, (now turned to support). We expect the pair to maintain its bearish momentum as the downward trendline incepted since the 25th of July, remains intact. However, one should note that the RSI indicator in the daily chart has broken below the reading of 30, which could be implying a rather overcrowded short position. Should the pair remain under the selling interest f the market, we could see the pair breaking the 1.2135 (S1) support line and aim if not also break the 1.2075 (S2) support level. Should the pair’s long positions e favored by the market, we could see it breaking the 1.2210 (R1) resistance line and aim for higher grounds.
Other economic highlights, today and early tomorrow
Today during the European session, we get Germany’s GfK consumer sentiment indicator for August, Eurozone’s industrial sentiment as well as the areas consumer confidence (final), both for July. Late in the European session, we get Germany’s preliminary CPI rate for July. From the US in the American session, we get the personal consumption rate, as well as the core PCE price index, both for June. Also in the American session from the US, we get the CB consumer confidence indicator for July, the pending home sales rate for June and late in the American session, we get the API weekly crude oil inventories figure. Tomorrow during the Asian session, we get China’s NBS manufacturing PMI for July and a bit later Australia’s CPI rate for Q2, which could provide volatility for the Aussie. Please bear in mind that the US- Sino trade negotiations are to restart today. The two sides until now seemed less willing to actually make concessions in order to strike a deal, or show some progres, yet on the other hand both economies seem to need such an agreement, in order for trade relations and terms to start normalizing.
GBP/USD Daily
Support: 1.2135 (S1), 1.2075 (S2), 1.2000 (S3)
Resistance: 1.2210 (R1), 1.2290 (R2), 1.2370 (R3)
USD/JPY H4
Support: 108.60 (S1), 107.90 (S2), 107.20 (S3)
Resistance: 109.15 (R1), 109.90 (R2), 110.65 (R3)
