Kickstart the NA session for Augste 14: USD falls across the board as BOJ rate hike talk lifts the yen
The US dollar is trading lower across the board to start the North American session on Friday, with the greenback losing ground against all of the major currencies. The NZD is leading the way, rising 0.62% versus the USD and back above the 100 and 200 hour MAs (see chart below), while the GBP is up 0.39%, the CAD is up 0.37%, the EUR is up 0.35%, and the JPY is up 0.22% versus the dollar. For the three major pairs covered in the Kickstart video, that translates into EURUSD and GBPUSD moving higher, while USDJPY is moving lower.
In today’s Kickstart video, I take a technical look at three of the currency pairs – the EURUSD, USDJPY and GBPUSD – identifying the bias, the risk levels that could shift that bias, and the key targets ahead. Those are the three things every trader should be aware of as the North American trading day gets underway.
For the Japanese yen and the Bank of Japan are a major focus today following reports that the BOJ could raise rates as soon as its September 17-18 meeting and may accelerate the pace of tightening thereafter. The BOJ has generally been raising rates at a pace of roughly twice a year, but growing concerns about inflation and continued yen weakness are increasing the pressure to move more quickly. Reuters reports that markets are now pricing in nearly an 80% probability of a September hike. (Reuters)
USDJPY initially reacted to the report by falling from around 159.32 to 159.15 before paring some of that decline. However, higher BOJ rates do not necessarily guarantee a sustained yen rally. Justin spoke to 3 reasons why the BOJ might not be able to save the JPY. Japan’s fragile fiscal position limits how aggressively the BOJ can tighten, real interest rates remain low, and markets have already priced in significant additional tightening. The BOJ may therefore need to do more than simply raise rates—it may need to surprise traders with the speed and extent of future tightening to generate a more lasting change in the yen’s trend. The recent experience with intervention also shows the challenge, with the yen having already surrendered roughly half of the gains generated by the joint US-Japan intervention. (Reuters)
In the Eurozone, the second estimate of Q2 GDP showed growth of 0.4% quarter-on-quarter, unchanged from the preliminary estimate. Q1 growth was revised down to 0.0% from +0.1%, while the economy grew 1.0% from a year ago. The report has had limited market impact, with attention remaining on central-bank policy, inflation and geopolitical developments.
In the European stock market, the major indices are mostly higher as North American traders enter for the day. Germany’s DAX is leading the gains, while France, the UK and Italy are little changed.
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DAX: +0.79%
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CAC: +0.06%
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FTSE 100: +0.01%
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Ibex: +0.18%
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FTSE MIB: +0.03%
In the US stock market, futures are pointing to a mixed opening. The S&P 500 closed at a record level yesterday, helped by another softer US inflation report, but the major averages are showing only modest changes ahead of today’s open.
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S&P: +4.26 points
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Dow: -61 points
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Nasdaq: +82 points
In the US debt market, Treasury yields are mixed, with the shorter end slightly lower and the longer end moving higher. That is producing a steeper yield curve, with the largest move coming in the 30-year yield.
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2-year: 4.1376%, down 0.2 basis points
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5-year: 4.3162%, up 0.3 basis points
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10-year: 4.6526%, up 1.2 basis points
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30-year: 5.2361%, up 2.5 basis points
In commodities, crude oil is trading modestly higher and holding above $81, while precious metals are also seeing gains. Gold is up 0.19%, while silver is outperforming with a gain of nearly 0.5%.
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Crude oil: $81.71, +$0.46 or +0.57%
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Gold: $4,358.34, +0.19%
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Silver: $64.78, +0.48%
Bitcoin is moving in the opposite direction, trading lower on the day and back below the $63,000 level.
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Bitcoin: $62,817, down $601 or -0.95%
On tap for economic releases today, the US consumer takes center stage today, with July retail sales highlighting the 8:30 AM ET data slate. After this week’s CPI and PPI reports showed inflation moderating, the retail sales data will give traders another piece of the puzzle—this time on the strength of consumer spending. Later, the preliminary University of Michigan survey will provide an update on consumer sentiment and, importantly for the Fed, inflation expectations.
8:30 AM ET — US Retail Sales
- Retail sales MoM: +0.1% expected vs +0.2% prior
- Retail sales ex-autos: +0.2% expected vs -0.2% prior
- Retail sales ex-gas/autos: +0.4% prior
- Retail control group: +0.3% expected vs +0.5% prior
- Retail sales YoY: +6.72% prior
8:30 AM ET — Canada
- Manufacturing sales MoM: -0.1% expected vs +1.3% prior
- Wholesale trade MoM: +2.7% expected vs 0.0% prior
10:00 AM ET — US Business Inventories
- Business inventories MoM: +0.1% expected vs +0.3% prior
- Retail inventories ex-autos: -0.2% prior
10:00 AM ET — University of Michigan preliminary August survey
- Consumer sentiment: 54.5 expected vs 55.2 prior month
- Current conditions: 55.0 expected vs 54.8 prior
- Consumer expectations: 55.2 expected vs 55.4 prior
- 1-year inflation expectations: 4.2% prior
- 5-year inflation expectations: 3.3% prior
The 8:30 AM retail sales report is the main event. A stronger-than-expected report would reinforce the idea that the US consumer remains resilient, while a downside surprise would add another softer data point following this week’s inflation reports. At 10:00 AM, the Michigan 1-year and 5-year inflation expectations will also be worth watching closely for what they say about whether consumers see the recent moderation in inflation continuing.
This article was written by Greg Michalowski at investinglive.com.