Market worries for global economic slowdown intensify

The USD tended to edge higher against its counterparts yesterday and during today’s Asian session as after a number of hawkish interest rate decisions by central banks, market worries for a possible economic slowdown seem to intensify feeding the greenback with safe haven inflows. It should be noted on the other hand that JPY, a classic safe haven instrument weakened as Japan’s slowing inflation rates and dovish BoJ tend to weigh on the Japanese currency. It’s characteristic that on a technical level USD/JPY was on the rise breaking the 142.75 (S1) resistance line, now turned to support. We maintain our bullish outlook for the pair as long as the upward trendline guiding the pair since the 15^th of June remains intact and given that the RSI indicator is running just above the reading of 70, highlighting the bullish sentiment of the market for the pair, yet at the same time may imply that the pair has reached overbought levels and may be ripe for a correction lower. The Bollinger bands seem to be sending similar signals. Should the bulls maintain control over the pair, we may see USD/JPY aiming if not breaking the 145.10 (R1) resistance line. Should the bears take over, we may see USD/JPY reversing course breaking the prementioned upward trendline, break the 142.75 (S1) line and aim for the 140.80 (S2) level.

Making a start with BoE which took the markets by surprise hiking the interest rate by 50 basis points and raising it to 5.00%. In its accompanying statement, the bank cited “ indications of persistent inflationary pressures in the economy” and “the tightness of labor market conditions”. The market maintains the view of more rate hikes to come with the peak being set at 6.00% after the release. Overall, we expect the bank to maintain its hawkish stance and market’s expectations for further rate hikes to come which in turn may continue to provide support for the pound. GBP/USD edged a bit lower yesterday and during today’s Asian session, yet the overall picture of a sideways motion between the 1.2865 (R1) resistance line and the 1.2660 (S1) support line, tends to be maintained for now. Yet despite our bias for the sideways motion to continue for cable, we note that the RSI indicator is below the reading of 50 and dropping which may imply that a bearish sentiment may be building up for the pair. Should a full selling interest be expressed by the market for the pair we may see cable breaking the 1.2660 (S1) support line and aim for the 1.2465 (S2) support level. Should the bulls take over, we may see GBP/USD breaking the 1.2865 (R1) resistance line and aim for the 1.3070 (R2) resistance level.

The Swiss National Bank delivered a 25 basis points rate hike that tended to pass rather unnoticed as it may have been expected by the markets. Norges Bank on the other hand, took the markets by surprise and delivered a 50 basis points rate hike and stated in its forward guidance that more rate hikes lay ahead, yet any gains made by the NOK were quickly reversed. Finally the big disappointment for exotic currency pairs on Thursday may have been served by the Turkish Central Bank. The bank given the change of leadership was expected to perform a pivot from its previous dovish stance and hike rates considerably, signaling a return to orthodox economic policies. Some analysts even considered that the bank could raise the one-week repo to 21%. The bank seems to have failed to meet the market’s hawkish expectations as it raised the one week repo rate to 15% from prior 8.5%. The decision may have intensified the market’s doubts about the sincerity of Erdogan’s intentions and thus allowed for the Lira to enter a freefall.

Other highlights for the day:

Today we note the release of UK’s retail sales for May, and the preliminary PMI figures of June for France, Germany, the Eurozone as a whole, the UK and the US. On the monetary front we note that  ECB President Christine Lagarde, St. Louis Fed President Bullard, Atlanta Fed President Bostic, ECB board member Panetta and Cleveland Fed President Mester are scheduled to speak. During Monday’s Asian session please note that BoJ is to release the summary of opinions for the June meeting.

GBP/USD H4 Chart

Support: 1.2660 (S1), 1.2465 (S2), 1.2280 (S3)

Resistance: 1.2865 (R1), 1.3070 (R2), 1.3295 (R3)

USD/JPY H4 Chart

Support: 142.75 (S1), 140.80 (S2), 138.70 (S3)

Resistance: 145.10 (R1), 146.80 (R2), 148.80 (R3)

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