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by Darius Anucauskas

The British Pound Takes A Hit; UK and Eurozone CPIs, Together With Jerome Powell’s Testimony Are On Focus Today.

Yesterday, it was a bad day for the British currency, as the Pound dropped against all of its major counterparts. The strong selling came after the UK delivered its employment and average earning numbers, together with claimant count and employment change. The first two sets of data were in line with expectations, but the last two were a complete miss. The claimant count number came out at 7.8k, which is more than three times the expected figure of 2.3k. This is a significant jump in the amount of people in the past month who have been unemployed and claimed benefits. Another worry was the employment change number that did not meet expectations. It came out at 137.0k, when it was expected to be around 150.0k. The new figure was not only below the expected one, but also below the previous 146.0k. All this added up to weaken the British Pound.

Jerome Powell delivered his testimony yesterday to the House Committee and the Senate. He pointed out that strong economic growth and good job gains helped the Fed to avoid additional “boosts” that they were planning to include in the economy. The Fed has already raised rates twice this year and it seems that there could be two more hikes. The possibility for a September hike currently sits at around 88%, while the next potential December hike is at around 58% probability. For now, the Fed sees the jobs to remain strong and the inflation rate to be around their 2 percent target.

During the testimony, Jerome Powell avoided the questions in regards to the trade policy, delivered by the White House. He said that it was: “difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy”. We believe it would be difficult for Powell to show any signs of criticism towards the White House, as he has succeeded Janet Yellen, when Donald Trump did not offer her the second term.

As for today, the spotlight falls on UK, Eurozone and the US. The UK and the Eurozone are to deliver their inflation numbers, whereas the US are set to release building permit figures. Also, we have Jerome Powell testifying again, but this time it will be followed by a different Q&A session.

UK’s inflation numbers are expected to have risen in June, from the previous month. The core CPI (YoY) projection is at +2.2%, where the headline’s YoY CPI is expected to come out at 2.6%. Both numbers are above the Bank of England’s target of 2%. If this continues like this, then we could expect the BoE raising the rate, which currently sits at +0.5%.

The Eurozone is also set to deliver their inflation figures. Both YoY core and headline numbers are expected to come out the same as previously, at +1.0% and +2.0%, respectively. But the MoM core and headline are projected to have declined for the month of June. The core CPI expectation is to go from +0.3% to +0.1%, whereas the headline CPI is believed to have declined from +0.5% to +0.1%.

GBP/JPY – Technical Outlook

Once again, GBP/JPY got held by its long-term upwards moving trendline, taken from the low of 17th of April last year, where the pair could not move back above it. GBP/JPY then was met with heavy selling and the rate dropped lower, where it found support at around 147.60 area. From a very short-term perspective, the pair broke a tentative upside support line, drawn from the low of 28th of June, and closed below it, this way adding a bit more negativity to its short-term outlook.

Because of the abovementioned reasons, there is a possibility for GBP/JPY to retrace lower and test the 147.60 mark again. A break below could trigger more selling, where the bears would be more than happy to take the pair lower towards the next potential area of support at 146.80. If the last level is not able to withhold, then further declines are possible and the area to watch below could be the 146.10 hurdle.

On the upside, for us to become bullish, we would need to see a strong reversal to the upside as well as a break and a close above the 149.00 level. This could open the path higher towards the aforementioned trendline, which could get tested from underneath again. If eventually, a break of that line happens, then we could start targeting the psychological 150.00 barrier.

 

USD/CAD – Technical Outlook

USD/CAD has been in an up-and-down movement recently, but finally showed a sign of strength. The pair managed to break through a key area of resistance at 1.3220, which now could act as a nice bouncing ground, if USD/CAD decides to correct back down. USD/CAD is also above its short-term upside support line, drawn from the low of 17th of April this year. Until that line remains intact, we will stick to the upside scenario at least for a while.

Because USD/CAD broke the 1.3220 barrier, this has opened the way towards the 1.3275 zone, which could be tested and act as a good initial area of resistance. If that area is not able to withhold the rate from accelerating further, then we could then start targeting the 1.3385 hurdle, marked by the highs seen in June.

Alternatively, a strong move back down, below the 1.3220 level could worry the bulls, who in their case, could start abandoning the pair. This is where the bears could step in and drive USD/CAD towards recent lows. The first potential area of support could be seen at 1.3175 zone, a break of which, could lead to a decline towards the aforementioned upside support line. The level of support to watch around there could be the 1.3110, marked by yesterday’s low. This is where USD/CAD could stall, as the bulls and the bears could start battling it out over who will take the driver’s seat from there.

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