RBA Minutes, UK Labour Data And Powell’s Speech

During the early hours of the Asian morning, we have received the RBA meeting minutes from the latest monetary policy meeting. During the early hours of the European morning today we have received UK labour-related data for the recent months. Before the US opening bell, the US will deliver its retail sales figures for the month of July, both core and headline. Later on in the day, Fed chair Powell is expected to deliver a speech.

RBA

During the early hours of the Asian morning, we have received the RBA meeting minutes from the latest monetary policy meeting. At that gathering, the RBA confirmed that it will continue buying bonds, beyond September, although at a slower pace, while officials confirmed that interest rates are likely to stay at present levels at least until 2024. Also, according to the central bank, it believes that Australia’s GDP will decline in Q3, due to the lockdown measures, which are currently imposed. That said, the RBA believes that the Australian economy could grow by 4% in 2022 and by around 2% in 2023.   

UK Labour Numbers

During the early hours of the European morning today we have received UK labour-related data for the recent months. The initial expectation for the average earnings including and excluding bonuses was for larger numbers than the previous ones. In reality, the excluding bonuses figure showed up exactly as forecasted, at +7.4%, but the average earnings including bonuses was greater than the forecast, coming out at +8.8%. This could result in further inflation increases, as real wages increase, the CPI may adjust accordingly in the near term as well. The BoE’s current inflation target sits at 2.0%. Some investors are starting to worry about the inflation rate rising way too quickly and that the Monetary Policy Committee would have to adjust their policy earlier. However, during the last meeting, the BoE said that the current policy is appropriate. GBP did not react much to the news, however the pound pair was seen stronger against commodity-linked currencies, such AUD. NZD and CAD. But the British currency was on the lower side against safe havens, such as JPY, CHF and USD.

GBP/AUD – Technical Outlook

Overall, GBP/AUD continues to balance above a short-term tentative upside support line taken from the low of July 6^th. This morning, the pair pushed further north, overcoming yesterday’s high, at 1.8930. For now, we will continue aiming higher.

A move higher might bring the rate closer to the highest point of July, at 1.8970, where the pair could stall for a bit.  If that barrier continues to provide resistance, GBP/AUD may correct back down a bit. That said, if the pair remains somewhere above the 1.8930 territory, this might invite the bulls back into the game, potentially sending the rate up again. If this time the 1.8970 obstacle surrenders, this will confirm a forthcoming higher high and the next possible target could be at 1.9014, marked by the high of May 14^th, 2020.

Alternatively, if the pair breaks below the aforementioned upside line, this may spook the remaining bulls from the field for a while, attracting more bears into the game. GBP/AUD could fall to the next support area between the 1.8755 and 1.8773 levels, marked by the lows of August 3^rd and 13^th respectively, where a temporary hold-up might occur. That said, if the bears continue to dominate the field, they may send the rate further south, aiming for the 1.8703 zone, marked by the low of July 26^th.

US Data And Powell’s

Before the US opening bell, the US will deliver its retail sales figures for the month of July, both core and headline. Both readings are expected to have declined significantly, with the MoM core one going from the +1.3% to 0.1% and the MoM YoY figure going from positive +0.6% to a negative 0.2%. After the retail sales numbers, the US will deliver the industrial production data for July on a MoM and YoY basis. There is currently no expectation for the YoY one, but the MoM figure is expected to have improved by a bit, going from +0.4% to +0.5%.

Later on in the day, Fed chair Powell is expected to deliver a speech. As stated in our Weekly Outlook delivered on Monday, investors could get a more direct view on the Fed’s future course of action. At the prior gathering, the Committee kept its policy unchanged, but although officials repeated that they will keep the pace of their QE purchases unchanged until “substantial further progress has been made” towards their goals, they added that the economy has made such progress, and that they will continue to assess the progress in coming meetings. Having said all that though, at the press conference following the decision, Fed Chief Powell said that the labour market has still a long way to go, and that inflation is still expected to fall back to their longer-run goals. He also added that the timing of taper will depend on incoming data and that they will provide advance notice before any changes, something that may have poured cold water on expectations of an early tightening.

Since then, several Fed officials, including Vice Chair Richard Clarida, expressed a more hawkish view than Powell did, while the employment report for July came in stronger than anticipated.  All this may have revived speculation for early tapering by the Fed, perhaps as early as next month, and that’s why the greenback has been on an uptrend mode recently. The CPIs slowed somewhat on Wednesday on a mom basis and the dollar retreated, but the PPIs accelerated further on Thursday, suggesting that inflation may have not hit a ceiling yet.  

USD/JPY – Technical Outlook

USD/JPY continues to drift lower, while trading below a short-term tentative downside resistance line taken from the high of August 11^th. Recently, the pair is seen to be getting a hold-up near the 109.11 hurdle, which we will monitor carefully. In order to continue aiming lower, a drop below that hurdle is needed.

A push through the 109.11 zone, marked by yesterday’s low, would confirm a forthcoming lower low, possibly clearing the path towards the 108.88 area, which is the low of August 3^rd. If the sellers are still feeling strong, they might overcome that area and target the current lowest point of August, at 108.72.

On the upside, in order to get a bit more comfortable with the upside, a break of the aforementioned downside line would be needed. In addition to that, a push through the 109.75 hurdle, marked by the current highest point of this week could invite a few extra buyers into the playing field and send the pair to the 110.02 hurdle, marked by an inside swing low of August 9^th. If the bulls don’t stop there, they might lift USD/JPY to the 110.30 level, marked by the inside swing low of August 11^th.

As For The Rest Of Today’s Events

From The US we will also get the manufacturing production number for July, which is expected to improve, going from -0.1% to +0.6%. The business inventories are also set to show up higher, going from +0.5% to +0.8% for the month of June.

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