Mon, Oct 03, 2022 @ 07:46 GMT
HomeAction InsightMarket OverviewDollar and Yen Firmer on Recession Talks

Dollar and Yen Firmer on Recession Talks

Yen and Dollar are so far stronger for the week, with recession as a main theme in the markets. Yet, their upside is relatively limited, as US stocks managed to extend near term rally overnight. Commodity currencies are generally on the softer side, but Aussie, Kiwi and Loonie are all staying inside last week’s ranges. Euro and Sterling are mixed for now, while Swiss Franc is firm.

Technically, EUR/USD’s break of 1.0201 minor support argues that rebound from 0.9951 has already completed at 1.0368. Deeper fall is in favor back to retest 0.9951 low. Some attention will also be on Gold, which lost much upside momentum after hitting 1807.66. Break of 1764.77 support will also argue that rebound from 1680.83 has completed, and bring retest of this low. Developments in EUR/USD and Gold could reinforce each other.

In Asia, Nikkei dropped -0.01%. Hong Kong HSI is down -0.99%. China Shanghai SSE is up 0.12%. Singapore Strait Times is down -0.18%. Japan 10-year JGB yield is down -0.016 at 0.171. Overnight, DOW rose 0.45%. S&P 50 rose 0.40%. NASDAQ rose 0.62%. 10-year yield dropped -0.058 to 2.791.

UK payrolled employment rose 73k in Jul, unemployment rate unchanged at 3.8% in Jun

UK payrolled employment increased by 73k, or 0.2% mom, in July. Comparing with the same month a year ago, payrolled employees rose 29.7m, or 2.9% yoy. Claimant count dropped -10.5k, smaller than expectation of -32.9k. Median monthly pay rose 6.6% yoy to GBP 2108.

In the three months to June, unemployment rate was unchanged at 3.8%, matched expectations. Average earnings excluding bonus rose 4.7% 3moy, above expectation of 4.4%. Average earnings including bonus rose 5.1% 3moy, below expectation of 5.2%.

RBA Minutes: Further monetary policy normalization expected

In the minutes of the August 2 meeting, RBA expects to “take further steps in the process of normalizing monetary conditions over the months ahead”. However, it is “not on a pre-set path.” The path is a “narrow one” and “subject to considerable uncertainty”. The size of timing of future rate hikes will be guided by incoming data and the assessment of the outlook for inflation and labor market, including the risks.

RBA said that inflation is expected to “peak later in 2022”, then decline to top of 2-3% target range by the end of 2024. The expected moderation reflected “the ongoing resolution of global supply-side problems, the stabilization of commodity prices and the impact of rising interest rates in Australia and overseas”. Medium-term inflation expectation remained “well anchored”.

The Australian economy was “growing strongly” with resilient consumer spending and positive investment outlook. National income was boosted by rise in terms of trade to record high”. Outlook is expected to “remain strong” for the rest of 2022, then slow in 2023 and 2024. Employment was “growing strongly” and further declines in unemployment rate were expected over the months ahead.

Looking ahead

Germany ZEW economic sentiment will be the main feature in European session. Eurozone will release trade balance. Later in the day, Canada CPI will take center stage. US will publish housing starts and building permits, and industrial production.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0120; (P) 1.0194; (R1) 1.0233; More

EUR/USD’s break of 1.0201 minor support suggests that rebound from 0.9951 has completed at 1.0368 already. That came after rejection by 55 day EMA, as well as falling channel resistance. Intraday bias is back on the downside for retesting 0.9951 low. Firm break there will resume larger down trend. For now, risk will stay on the downside as long as 1.0368 resistance holds, in case of recovery.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0773 resistance holds, in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
01:30 AUD RBA Meeting Minutes
04:30 JPY Tertiary Industry Index M/M Jun -0.20% 0.50% 0.80% 1.10%
06:00 GBP Claimant Count Change Jul -10.5K -32.0K -20.0K -26.8K
06:00 GBP ILO Unemployment Rate (3M) Jun 3.80% 3.80% 3.80%
06:00 GBP Average Earnings Excluding Bonus 3M/Y Jun 4.70% 4.40% 4.30%
06:00 GBP Average Earnings Including Bonus 3M/Y Jun 5.10% 5.20% 6.20%
09:00 EUR Eurozone Trade Balance (EUR) Jun -20.0B -26.0B
09:00 EUR Germany ZEW Economic Sentiment Aug -59.9 -53.8
09:00 EUR Germany ZEW Current Situation Aug -48 -45.8
09:00 EUR Eurozone ZEW Economic Sentiment Aug -57 -51.1
12:15 CAD Housing Starts Jul 265K 274K
12:30 CAD CPI M/M Jul 0.10% 0.70%
12:30 CAD CPI Y/Y Jul 7.60% 8.10%
12:30 CAD CPI Common Y/Y Jul 4.70% 4.60%
12:30 CAD CPI Median Y/Y Jul 4.90% 4.90%
12:30 CAD CPI Trimmed Y/Y Jul 5.40% 5.50%
12:30 USD Building Permits Jul 1.65M 1.70M
12:30 USD Housing Starts Jul 1.35M 1.56M
13:15 USD Industrial Production M/M Jul 0.20% -0.20%
13:15 USD Capacity Utilization Jul 80.10% 80.00%

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