2 FX Moves to Watch for Today
Look for GBPUSD to challenge and possibly overcome 1.56 on the heels of more standout UK data, and watch today’s US industrial reports, which should decide whether USDJPY stalls or rallies to take on 98.50.
More positive economic data out of the UK helped push GBPUSD towards the 1.5600 level, while USDJPY was jerked around like a yo-yo after Japanese officials denied rumors of any corporate tax cut in the near future. Given the fact that we are in the middle of the summer holiday season, we had rather lively overnight sessions in Asia and early-morning European trade.
In the UK, retail sales handily beat expectations, printing at 1.1% versus 0.7% expected and suggesting that the recovery is starting to have a positive impact on consumer spending. Sales were up an impressive 3% on a year-over-year basis, boosted by hot weather in July. Supermarkets saw a monthly sales increase of 2.5% and reported strong sales in barbeque food, outdoor items, clothing, and alcohol.
The GBPUSD responded positively to the news, spiking to a high of 1.5594 before easing slightly on profit taking. The pair is now within striking distance of the key 1.5600 level, which has been stubborn resistance over the past several days.
However, given the string of upside economic surprises over the past two weeks, investors are now much more confident in the UK recovery story and may push the pair through the 1.5600 barrier in today’s North American session.
Meanwhile, in Asia, USDJPY see-sawed wildly, first rising on speculation of a possible corporate tax cut, then falling sharply after official denials from chief cabinet secretary Yoshihide Suga and Japan's finance minister Taro Aso. The rejection of the tax-cut idea could weigh on USDJPY as Japanese efforts to stimulate the economy run up against the reality that the nation is still facing a massive budget deficit.
So far, the USDJPY rebound has stalled ahead of the 98.50 level, and the pair has not been helped by the tame US inflation data, which takes some of the pressure off the Federal Reserve to taper early. Today's CPI numbers, which are expected to print at 0.2% versus 0.2% the month prior, could reinforce that notion if they print cooler than expected.
In addition to the CPI readings, the market will get to see a slew of Industrial data, including the Empire State and Philly Fed manufacturing surveys and industrial production numbers. If the data shows any slowdown in activity, USDJPY could drift lower once again. On the other hand, if US data shows a pick-up from the stall in July, USDJPY may take another run at the 98.50 level.
By Boris Schlossberg of BK Asset Management
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.