USD gains on higher GDP rate

The USD was on the rise against its counterparts yesterday as the final GDP rate for Q1 accelerated beyond the market’s expectations reaching +2.0% qoq on an annualized basis. The release was another signal of a more robust US economy and tends to support the view that the US economy may be able to avoid a recession, or for it to be a shallow one. Across the Atlantic, we note that Germany’s preliminary HICP rate for June accelerated, which comes into a stark contrast with the deceleration noted for Spain and Italy. The release may harden the German hawkish view and may prompt the Bundesbank to push for more rate hikes, deepening the rift within the ECB. For the time being we highlight the release of the HICP rate of the Eurozone as a whole and a possible slowdown may weaken the EUR as it may ease the ECB’s hawkishness for the September meeting. On a technical level EUR edged a bit lower against the USD testing the 1.0855 (S1) support line. Yet for our bias for a continuance of the sideways motion to change in favour of a bearish outlook we would require the pair to break the 1.0855 (S1) support line and aim for the 1.0695 (S2) support level. Please note though that the RSI indicator nears the reading of 30, implying a built-up of the bearish sentiment for the pair. Should the bulls take over, wee may see the pair reversing course, breaking the 1.1000 (R1) resistance line and aim for higher grounds.

North of the Eurozone we note yesterday in Sweden, Riksbank’s interest rate decision to hike rates by 25 basis points as was expected. We recognise the bank’s hawkishness as mentioned in the last in the face of a strong inflation which may support the Krona, yet we also maintain some worries for a possible market intervention to its rescue, given that SEK has weakened extensively. Furthermore we also maintain our worries about a possible market intervention from Japan in the rescue of JPY which has weakened substantially in the past few days and given repeated warnings from Japanese officials about the issue including Japan’s Finance Minister Suzuki.

USD/JPY seems to have hit a ceiling at the 145.10 (R1) resistance line for now. Yet our bullish outlook is to be maintained as long as the upward trendline guiding the pair since the 14 of June, remains intact. Please note that the RSI indicator remains above the reading of 50, yet is slightly dropping and should it drop even further we may see the bullish sentiment of the market easing. Should the pair find fresh buying orders along its path we may see USD/JPY breaking the 145.10 (R1) resistance line and aim for the 146.80 (R2) resistance hurdle. Should the bears take over, we may see USD/JPY, dropping, breaking initially the prementioned upward trendline, in a first signal that the upward movement was interrupted, break the 142.75 (S2) support level and aim for the 140.80 (S2) support level. To the south our worries for the recovery of the Chinese economy as despite the slight improvement of the NBS manufacturing PMI reading for June the figure remained below 50 implying another contraction of economic activity for the giant Chinese manufacturing sector in the past month.

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Today in the European session, we note from the UK the release of the GDP rate for Q1 and June’s nationwide house price growth rate and Switzerland’s KOF indicator for the same month. In the American session, we get from the US the Consumption rate and Core PCE price index both for May as well as the final US University of Michigan consumer sentiment for June and Canada’s GDP rate for April. During Monday’s Asian session, we note the release of Australia’s and Japan’s final manufacturing PMI figures for June, Japan’s Tankan indexes for Q2, Australia’s building approvals for May and China’s Caixin manufacturing PMI figure for June.