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• UK retail sales expected to slip in July
• Fed minutes note concern about inflation

The British pound has extended its gains on Thursday. In the North American session, GBP/USD is trading at 1.2772, up 0.32%.

UK retail sales expected to decline

The UK will wrap up a busy week with retail sales on Friday. The July report is expected to show a decline in consumer spending. Headline retail sales are expected to fall by 0.5% after a 0.7% gain in May and core retail sales are projected to decline by 0.7% after a 0.8% increase in May. The June numbers were higher than expected despite high inflation, helped by record-hot weather. Will the July data also surprise to the upside?

The UK consumer has been grappling with the highest inflation in the G7 club, which means shoppers are getting less for their money. This has dampened consumption, a key driver of the economy. Energy prices are lower, thanks to the energy price cap, but food inflation continues to soar and was 17.4% y/y in June. Consumer confidence has been mired deep in negative territory and the GfK consumer confidence index, which will be released later today, is expected at -29, almost unchanged from the previous release of -30 points.

The Bank of England would like to follow some of the other major central banks that are in a pause phase, but the grim inflation picture may force the BoE to keep raising interest rates, which could tip the weak economy into a recession.

Wage growth jumped to 7.8% in the three months to June, up from 7.5% in the previous period. In July, headline CPI fell to 6.9%, down sharply from 7.9%, but core CPI remains sticky, and was unchanged at 6.9%. The data points to a wage-price spiral which could impede the BoE’s efforts to curb inflation.

The Federal Reserve remains concerned about high inflation and said that additional rate hikes might be needed, according to the minutes of the July meeting. At the meeting, the Fed raised rates by 0.25%, a move that was widely anticipated. Most members “continued to see significant upside risks to inflation, which could require further tightening of monetary policy”. At the same, time, members expressed uncertainty over the future rate path since there were signs that inflationary pressures could be easing.

GBP/USD Technical

• GBP/USD is testing resistance at 1.2787. The next resistance line is 1.2879
•  1.2726 and 1.2634 are providing support

Daily Pivots: (S1) 145.64; (P) 146.02; (R1) 146.74; More...

Intraday bias in USD/JPY is turned neutral with current retreat and some consolidations could be seen. On the upside, sustained break of 61.8% projection of 129.62 to 145.06 from 137.22 at 146.76 will pave the way to retest 151.93 high. However, considering bearish divergence conditio in 4H MACD, firm break or 143.88 resistance turned support will be a sign of reversal, and turn bias back to the downside for 55 D EMA (now at 141.65).

In the bigger picture, overall price actions from 151.93 (2022 high) are views as a corrective pattern. Rise from 127.20 is seen as the second leg of the pattern and could still be in progress. But even in case of extended rise, strong resistance should be seen from 151.93 to limit upside. Meanwhile, break of 137.22 support should confirm the start of the third leg to 127.20 (2023 low) and below.

Daily Pivots: (S1) 0.8779; (P) 0.8796; (R1) 0.8818; More....

Range trading continues in USD/CHF and intraday bias remains neutral. On the upside, sustained trading above 0.8818 support turned resistance will carry larger bullish implication. Further rally should then be seen to 0.9146 cluster resistance next. However, break of 0.8688 support will indicate rejection by 0.8818, and turn bias back to the downside for retesting 0.8551 low.

In the bigger picture, a medium term bottom could be in place at 0.8551 already, on bullish convergence condition in D MACD. Sustained trading above 0.8818 will bring further rise to 0.9146 cluster resistance (38.2% retracement of 1.0146 to 0.8551 at 0.9160), even as a correction. Nevertheless, break of 0.8851 will resume the down trend from 1.0146 instead.

Daily Pivots: (S1) 1.0856; (P) 1.0895; (R1) 1.0919; More...

While EUR/USD continues today lose downside momentum, further decline is still expected as long as 1.1064 resistance holds. Break of 1.0832 will extend the fall from 1.1274 to 1.0609/34 cluster support. However, break of 1.1064 will argue that the fall has completed and turn bias back to the upside for stronger rebound.

In the bigger picture, a medium term top could be formed at 1.1274, after failing to break through 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 decisively, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.0966) will bring deeper correction to 1.0634 cluster support (38.2% retracement of 0.9534 to 1.1274 at 1.0609). Strong support could be seen there, at least on first attempt, to set the range for consolidation.

Daily Pivots: (S1) 1.2690; (P) 1.2729; (R1) 1.2770; More...

GBP/USD's recovery from 1.2615 extends higher today but stays below 1.2817 resistance. Intraday bias remains neutral for the moment. On the downside, firm break of 1.2615, and sustained trading below 1.2678 resistance turned support will argue that it's already in a larger correction. Deeper decline would then be seen to 1.2306 support next. Nevertheless, break of 1.2817 minor resistance will indicate that the pull back from 1.3141 has completed, and turn bias back to the upside for stronger rebound.

In the bigger picture, a medium term top could be in place at 1.3141 already, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.2723) should confirm this case, and bring deeper fall to 38.2% retracement of 1.0351 to 1.3141 at 1.2075, as a correction to up trend from 1.0351 (2022 low). For now, rise will stay mildly on the downside as long as 1.3141 resistance holds, in case of strong rebound.

Dollar relinquished its early gains, entering US session as the day's softest currency. Even as US benchmark 10-year yields skyrocketed to touch 4.3% mark, they found themselves lagging behind their German and UK counterparts. On the flip side, Australian Dollar is mustering a recovery, buoyed in part by China's proactive measures to stabilize Yuan's exchange rate.

However, despite these fluctuations, the greenback has managed to secure its position as the second strongest currency for the week for now. Investors remain on the lookout, with possibility of a return of Dollar buyers should risk sentiments sway once more.

Sterling, marching to its own beat, continues its reign as this week's top performer, and its momentum against Euro is gaining steam. Meanwhile, Swiss Franc clinches third place. At the opposite end of the spectrum, Aussie struggles to shake off its tag as the week's laggard, trailed by Yen and Kiwi.

Technically, Bitcoin breaks through 28555 support today to resume the decline from 31815. It's uncertain whether this move is a correction to the larger up trend, or a reversal. But in either case, firm break of 61.8% projection of 31815 to 28555 from 30219 at 28204 could prompt downside acceleration to 100% projection at 26959. If materializes, this could be in tandem with deeper selloff in risk markets, in particular NASDAQ.

In Europe, at the time of writing, FTSE is down -0.32%. DAX is down -0.26%. CAC is down -0.32%. Germany 10-year yield is up 0.0396 at 2.691. Earlier in Asia, Nikkei dropped -0.44%. Hong Kong HSI dropped -0.01%. China Shanghai SSE rose 0.43%. Singapore Strait Times dropped -0.52%. Japan 10-year JGB yield is up 0.0226 at 0.655.

Chinese Yuan recovers as PBoC pledges to prevent over-adjustment

Chinese Yuan made a notable recovery today after PBoC made its intentions clear, vowing to staunchly prevent an "over-adjustment" in the Yuan's exchange rate and avert systemic financial pitfalls. Amplifying this verbal intervention, several of China's major state-owned banks have been observed actively selling US Dollars in favor of Yuan in both onshore and offshore markets this week.

This proactive stance by PBoC and state-owned banks arises at a time when Yuan has been on a downward trajectory, dangerously inching closer to its lowest levels since 2007.

Market observers are now grappling with a pivotal question: Is China's move aimed at establishing a firm bottom for Yuan or merely an effort to slow down its rapid decline?

Technically, a temporary top should be formed at 7.3491 in USD/CNH and some consolidation is now expected. As long as 55 4H EMA holds (now at 7.2685), further rally is still in favor. Break of 7.3491 will resume the rally from 6.6971 towards 7.3745 high, or possibly further to 61.8% projection of 6.8100 to 7.2853 from 7.1154 at 7.4889.

US initial claims dropped to 239k, slightly above expectation

US initial jobless claims dropped -11k to 239k in the week ending August 12, slightly below expectation of 240k. Four-week moving average of initial claims rose 3k to 234k.

Continuing claims rose 32k to 1716k in the week ending August 5. Four-week moving average of continuing claims dropped -8k to 1692k.

Eurozone exports rose 0.3% yoy in Jun, imports down -17.7% yoy

Eurozone exports of goods rose 0.3% yoy to EUR 252.3B in June. Imports fell -17.7% yoy to EUR 229.3B. Trade balanced recorded a EUR 23B surplus. Intra-Eurozone trade fell -4.1% yoy to EUR 231.6B.

In seasonally adjusted term, exports dropped -0.5% mom to EUR 237.2B. Imports dropped -5.6% mom to EUR 224.6B. Trade surplus widened to EUR 12.5B, larger than expectation of EUR 2.3B. Intra-Eurozone trade fell from EUR 220.8B to 217.6B during the month.

Australian employment down -14.6k, but hours worked continue to rise

Australia witnessed a contraction in employment by -14.6k in July, starkly missing expectations of a 15.2k growth. This decline was majorly attributed to a drop in full-time jobs by -24.2k, even as part-time employment saw an increase of 9.6k.

Unemployment rate rose from 3.5% to 3.7%, surpassing market anticipations which had pinned it at 3.6%. The participation rate also registered a dip, moving from 66.8% to 66.7%.

However, it wasn't all bleak. Monthly hours worked showed a marginal increase of 0.2% mom. Commenting on this aspect, Bjorn Jarvis, ABS head of labour statistics, observed, "The strength in hours worked shows that it continues to be a tight labour market."

Jarvis pointed out that hours worked have risen by an impressive 5.2% compared to July 2022, a significant outperformance relative to the 2.8% annual increase in employment.

He further noted, "The strength in hours worked over the past year, relative to employment growth, shows the demand for labour is continuing to be met, to some extent, by people working more hours."

RBNZ Orr: We don't feel a rush to be changing rates anytime soon

In a Bloomberg TV interview, RBNZ Governor Adrian Orr indicated that a forthcoming mild recession is the "bare minium" for New Zealand, as "demand has been well outstripping the pace of the supply capacity."

"We need to see subdued consumer spending, business investment and government constraints on spending, these are a critical part of the inflation process," he added.

Orr also reiterated that interest rate will need to stay high for a period of time, as "we don't feel a rush to be changing rates anytime soon."

"We believe if we stay where we are for long enough, inflation will be back inside the target band mid-next year and, and stay there," he added.

RBNZ projects OCR to peak at 5.59% in mid-2024, then retract slightly to 5.36% by early 2025. This suggests rate cuts might be off the table for about 18 months. Orr clarified that these figures are projections and "signal or constraint."

Japans' export contracts in Jul, shipments to China fell for 8th month

Japan Witnesses First Export Contraction in Over Two Years Amidst Declining Trade with China

Japan's exports experienced a dip of -0.3% yoy to JPY 8725B in July. This contraction is noteworthy as it breaks a growth streak that has lasted for over two years since February 2021.

Diving deeper into the data, while shipments to US and Europe saw a positive trajectory with respective rises of 13.5% yoy and 12.4% yoy, the trade dynamics with China narrated a different story.

Exports to China, Japan's primary trading ally, plummeted by -13.4%, marking the steepest decline since January. Notably, this reflects an ongoing trend with shipments to China diminishing for the eighth consecutive month, subsequent to a -10.9% yoy drop in June.

On the import front, Japan registered a decline of -13.5% yoy to JPY 8804B. This marks the fourth consecutive month of declining imports and is the most significant dip since September 2020. The downturn can be partly attributed to the decreasing commodities prices.

With imports exceeding exports, trade balance for the month ended in a deficit of JPY -78.7B.

When observing the figures in seasonally adjusted terms, both exports and imports displayed a 2.0% mom rise, amounting to JPY 8460B and JPY 9018B respectively. Consequently, trade deficit widened slightly, reaching JPY -557B.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2690; (P) 1.2729; (R1) 1.2770; More...

GBP/USD's recovery from 1.2615 extends higher today but stays below 1.2817 resistance. Intraday bias remains neutral for the moment. On the downside, firm break of 1.2615, and sustained trading below 1.2678 resistance turned support will argue that it's already in a larger correction. Deeper decline would then be seen to 1.2306 support next. Nevertheless, break of 1.2817 minor resistance will indicate that the pull back from 1.3141 has completed, and turn bias back to the upside for stronger rebound.

In the bigger picture, a medium term top could be in place at 1.3141 already, on bearish divergence condition in D MACD. Sustained trading below 55 D EMA (now at 1.2723) should confirm this case, and bring deeper fall to 38.2% retracement of 1.0351 to 1.3141 at 1.2075, as a correction to up trend from 1.0351 (2022 low). For now, rise will stay mildly on the downside as long as 1.3141 resistance holds, in case of strong rebound.

Economic Indicators Update

US initial jobless claims dropped -11k to 239k in the week ending August 12, slightly below expectation of 240k. Four-week moving average of initial claims rose 3k to 234k.

Continuing claims rose 32k to 1716k in the week ending August 5. Four-week moving average of continuing claims dropped -8k to 1692k.

Full US jobless claims release here.

Now that we heard from Walmart, it is clear that the US consumer is still willing to spend. Expectations for robust consumer spending in Q3 have been confirmed and that should keep growth estimates trending higher. ​ With COVID savings still expected to be used over the next couple of months and a lag with how student debt repayments go, confidence in continued business momentum should remain. ​ The Atlanta Fed’s estimate of 5.8% looks like it might actually happen, which should keep the Fed standing by its hawkish stance that they might need to do more tightening to combat inflation. ​

US stocks are trying to hold onto gains as investors watch a bond market selloff that is taking global bond yields to a 15-year high. ​ China remains in focus and the decision from authorities to tell state-owned banks to step up intervention efforts is providing some support to markets. It is clear that China is working on their response here and that more support is on its way. ​ ​ ​

Walmart

Walmart’s top and bottom earnings beats were accompanied with raised guidance, which made them have one of the top results from the retailers. ​It seems that Walmart is taking away business from Target too, with grocery and ecommerce sales leading the way. ​ When the economy starts to cool in Q4, Walmart looks well positioned to be one of the top retailers. ​

FX snapshot

​The Australian dollar declined after the unemployment rate rose more than expected. Labor market weakness should make the next RBA meeting easy as the economy is feeling the impacts of the RBA rate hiking cycle. ​ The RBA will hold rates steady for a third straight time at the September policy meeting.

The Chinese yuan rallied against the dollar after the PBOC asked state banks to intervene. The yuan was depreciating too quickly and authorities needed to boost sentiment. ​ ​ ​

Some traders are not expecting BOJ intervention until we see excessive weakness that takes dollar-yen possibly beyond the 150 level. ​ ​ We also need to hear Japan officials state they are watching exchange rates with great interest. Japan will likely need to step into markets, but until we see further yen downside, traders might eye further dollar short-term strength. ​ ​

Oil

After falling nearly six dollars, it was only a matter of time before crude prices found support. ​ WTI crude is rebounding on expectations that Chinese officials will deliver meaningful stimulus and that the oil market will remain tight. Earnings are also providing optimism that the US consumer is still strong and willing to spend and travel at the end of the year.

The dollar rally has stalled but if the bond market selloff falls to a new level, that could prevent commodities from rebounding further. ​Oil looks like it will find a home around the $80 level as too many risks to the outlook still remain on the table; fears that the Fed will overtighten are back and uncertainty persists on how will the US consumer behave once all their COVID savings disappear and as student loan debt bills come due. ​ ​ ​ ​

Gold

Gold prices are trying to recover after some hawkish Fed Minutes kickstarted a global bond market selloff. ​ Bond yields are too high as more people become convinced inflation is not going away anytime soon. ​ After making a 5-month low, spot gold has fallen below the $1900 level. ​For the spot market the $1870 level remains major support, as the $1900 level with the gold’s future contract appears to have solid support. ​

Bitcoin

It looks like some leveraged funds are ramping up bearish bets that Bitcoin will drift lower. ​ The US Commodity and Futures Trading Commission's (CFTC) report on commitment of traders (COT) showed that as of August 8th, two-thirds are bearish, most likely a result of disappointment with the delays in seeing a Bitcoin US ETF approved. ​ When you throw in what is happening in the bond market, it becomes easy for Bitcoin prices to soften. ​ If risk aversion becomes the dominant theme on Wall Street, Bitcoin’s bearish momentum could target the $27,200 level. ​

Chinese Yuan made a notable recovery today after PBoC made its intentions clear, vowing to staunchly prevent an "over-adjustment" in the Yuan's exchange rate and avert systemic financial pitfalls. Amplifying this verbal intervention, several of China's major state-owned banks have been observed actively selling US Dollars in favor of Yuan in both onshore and offshore markets this week.

This proactive stance by PBoC and state-owned banks arises at a time when Yuan has been on a downward trajectory, dangerously inching closer to its lowest levels since 2007.

Market observers are now grappling with a pivotal question: Is China's move aimed at establishing a firm bottom for Yuan or merely an effort to slow down its rapid decline?

Technically, a temporary top should be formed at 7.3491 in USD/CNH and some consolidation is now expected. As long as 55 4H EMA holds (now at 7.2685), further rally is still in favor. Break of 7.3491 will resume the rally from 6.6971 towards 7.3745 high, or possibly further to 61.8% projection of 6.8100 to 7.2853 from 7.1154 at 7.4889.

Australian dollar spiked to the lowest since early November on Wednesday, hit by downbeat Australia’s labor data (employment fell by 14.6K in July after 31.6K increase in June and well below forecast for 15K increase, while unemployment rose to 3.7% from 3.5% previous months and overshot consensus at 3.6%) adding to already weakened risk sentiment on concerns about China’s economic recovery.

Fresh bears broke through Fibo support at 0.6403 (76.4% of 0.6170/0.7157) and hit new multi-month low at 0.6364, but dip was short-lived as price quickly bounced to the session high, as daily studies are stretched.

Price adjustment is likely to precede fresh push lower and offer better selling opportunities while the price stays below falling 10DMA (0.6501).

Firm break of cracked Fibo support at 0.6403 would signal continuation of larger downtrend and risk test of 2022 low at 0.6170.

On the other hand, bears may lose traction on lift and close above 10DMA (0.6501), which would also generate initial signal of bear-trap and allow for stronger recovery.

Res: 0.6458; 0.6501; 0.6521; 0.6547.
Sup: 0.6403; 0.6364; 0.6272; 0.6170.