Euro Open: Traders Focus on UK GDP

Japan’s Consumer Price Index surprised to the upside, putting inflation at 2.0% in the year to June versus expectations of 1.9%. Regardless, the Bank of Japan’s stated focus on supporting economic growth means policymakers will not be raising interest rates any time soon. Euro bears may give the single currency a bit of a respite as the calendar is largely uneventful for the forthcoming session. Traders will focus on the UK’s Gross Domestic Product figure for the second quarter as expectations call for a reading equivalent to the low since 1993.

[B][U]Key Overnight Developments[/U]

• Japanese Inflation Higher Than Expected, BOJ To Remain at 0.50%
• UK GDP Dominates Attention in European Trading[/B]

[U][B]Critical Levels[/B][/U]

The Euro inched higher overnight to test above 1.57 late into the session. DailyFX Technical Strategist Jaime Saettele reported that the magnitude of recent declines is beginning to threaten the long-term bullish bias. That said, the pair is still expected to continue on to a sustained break above the 1.60 mark to target 1.6325 as long as price remains above 1.5611. Near-term resistance is seen at 1.5736. Sterling dropped lower toward near-term support at 1.9830 but returned higher above 1.9860 late into Asian trading. The drop below 1.99 (now seen as resistance) has reversed the pair’s short-term bullish bias, with a break of support opens the door for a decline to the 1.9550-1.9600 area.

[U][B]Asia Session Highlights[/B][/U]

Japan’s [B]Consumer Price Index [/B]surprised to the upside, putting inflation at 2.0% in the year to June versus expectations of 1.9%. Most notably, the core figure that excludes distortions from rising food and oil prices rose as well, registering at 0.1% versus 0.0% expected and -0.1% in the preceding month. The Yen ignored the data as it is generally assumed that the Bank of Japan will not be raising interest rates any time soon. Last week’s release of the minutes from the BOJ’s June meeting revealed a growing number of policymakers took the opinion that the commodities rally has not produced second-round price growth (such as growth in wages), suggesting the bank’s focus should be on supporting economic growth.

[U][B]Euro Session: What to Expect[/B][/U]

Euro bears may give the single currency a bit of a respite as the calendar is largely uneventful for the forthcoming session. July’s [B]Italian Retailers’ Confidence[/B] and [B]Services Survey[/B] are likely to underperform, with yesterday’s overall Business Confidence showing the lowest reading since 2001 at 83.5.

Traders will focus on the UK awaiting the release of [B]Gross Domestic Product[/B] figures for the second quarter. The economy expanded at 0.3% in the first quarter. NIESR, a think-tank, expects the growth rate to have eased to 0.2% this time around. The statement accompanying the forecast noted that their analysis “assumes that retail sales have fallen back in June”. This was validated yesterday as Retail Sales was revealed to have declined -3.9%, lending credence to NIESR’s projection. Quarterly growth at 0.2% would bring the annual figure to 1.6%, a reading equivalent to the low since 1993.

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To contact Ilya regarding this or other articles he has authored, please email him at <[email protected]>.[/I]