Yen softens again in calm market, with US CPI and UK data in focus this week

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Markets are generally flat in Asian trading today. European majors are firming slightly, but there is no clear follow-up to buying so far. On the other hand, the Yen is losing ground while commodity currencies are also soft. The dollar is mixed in the middle. The focus is back on economic data this week, with a particular focus on inflation data from the US, as well as a flurry of data from the UK.

Technically, the yen could be ready to resume its recent downtrend. The break of the 144.71 resistance in EUR/JPY will confirm the resumption of the recent rally. This could lead to further yen crosses to the upside. A corresponding break of the 144.98 temporary high in USD/JPY would confirm the overall underlying momentum.

In Asia, at the time of writing, the Nikkei is up 1.02%. Japan’s 10-year JGB yield is down -0.0002 to 0.251. Singapore Strait Times is up 0.33%. China and Hong Kong are on vacation.

Bundesbank Nagel: Further clear steps must follow if inflation stays the same

Bundesbank President Joachim Nagel said in a radio interview on Sunday that last week’s 75 basis point hike was “a clear sign and if the inflation picture remains the same, other clear steps must follow”.

He added that inflation could peak at over 10% in December. “During 2023, the inflation picture is expected to weaken somewhat,” he said. Still, the rate “is likely to be at a much too high level of over 6%”.

Although “there are currently indications that the economy could stagnate or even contract in the second half of 2022 and that this trend could continue into next year, any recession could be shallow,” Nagel added.

“At the end of the day, stable prices are much more important for medium to long-term growth, for a good outlook for the eurozone,” he said. “We may have to ride out a drought, but for now at least it looks like this drought and the decline in economic output won’t be serious.”

ECB Elderson: very important that inflation expectations do not lose their anchor

Frank Elderson, a member of the ECB’s executive board, said on Dutch television: “It is very important that people’s expectations about the evolution of inflation in the medium and long term do not lose their anchor”.

“It is vital that individuals and businesses or players in the broader economy maintain confidence that we as the ECB will achieve our 2% inflation target,” Elderson said.

US and UK economic data rocks markets

The focus has returned to economic data this week. The US CPI will be a major focus, along with retail sales. A flurry of UK data will also be released, including GDP, production, CPI, employment and retail sales. This data will fuel Fed and BoE thinking ahead of their meeting next week and could shake up markets.

Other data to watch include Germany ZEW Economic Sentiment; Employment and business confidence in Australia, as well as industrial production, retail sales and capital investment in China.

Here are some highlights of the week:

  • Monday: British GDP, production, trade balance.
  • Tuesday: BSI manufacturing in Japan, PPI; Australia NAB Business Trust; Germany Final CPI, ZEW Economic Sentiment; employment in the UK; Swiss PPI; US CPI.
  • Wednesday: New Zealand current account; Machinery orders in Japan; UK CPI, PPI; industrial production in the euro zone; manufacturing sales in Canada; American PPI.
  • Thursday: New Zealand GDP; Japan’s trade balance, tertiary industry index; Employment in Australia; euro zone trade balance; US Retail Sales, Empire State Manufacturing, Philadelphia Fed Manufacturing, Unemployment Insurance Claims, Import Prices, Industrial Production, Business Inventories.
  • Friday: BusinessNZ New Zealand Manufacturing Index; China industrial production, retail sales, capital investment; UK retail sales; Italy’s trade balance; Euro zone CPI final; Housing starts in Canada, wholesale sales; U of Michigan consumer sentiment in the United States.

USD/JPY Daily Outlook

Daily Pivots: (S1) 141.34; (P) 142.73; (R1) 143.96; After…

USD/JPY rallies slightly today but remains in range below 144.98. The intraday bias remains neutral and further consolidations could be seen. Lower pullback should be contained by 139.37 resistance turned support. On the upside, the breakout of 144.98 will resume a larger uptrend towards the long-term resistance at 147.68. The breakout there will target 161.8% projection from 126.35 to 139.37 from 130.38 to 151.44 next.

Overall the uptrend from 101.18 is still ongoing, part of the overall uptrend from 75.56 (2011 low). Further upside should be seen at 147.68 (1998 high). For now, the break of the 130.38 support is needed to be the first indication of a medium-term overshoot. Otherwise, the outlook will remain bullish even in the event of a deep pullback.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
06:00 JPY Machine tool orders A/A August 5.50%
06:00 GBP GDP M/M Jul. 0.30% -0.60%
06:00 GBP Industrial production H/M Jul 0.40% -0.90%
06:00 GBP Industrial production A/A Jul 2.00% 2.40%
06:00 GBP Manufacturing production M/M Jul. 0.60% -1.60%
06:00 GBP Manufacturing Y/Y Jul 1.70% 1.30%
06:00 GBP 3M/3M Service Index Jul. -0.80% -0.40%
06:00 GBP Goods Trade Balance (GBP) Jul. -23.2B -22.8B
08:00 USD Italy Industrial production M/M Jul 0.00% -2.10%
13:00 GBP NIESR August GDP Estimate 0.00%
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