Morning brief for July 14

It is a Bastille day in France. The US President and other foreign heads are visiting France and watching military parade on the Champs-Élysées. Donald Trump has already posted a tweet about his unbreakable relationship with the French President Emmanuel Macron.

Markets yesterday saw the AUD and NZD at the top of the FX leader board. The economic data has been quite strong with rising consumer inflation expectations joining the pickups in consumer and business confidence, but it was a sharp increase in Chinese imports that allowed the Aussie to hit its highest level in three months (0.7740). A break of the year-to-date high at 0.7750 might lead to a rapid rise towards the 2016 high of 0.7850 (with one additional resistance at 0.7778 ahead of this high). If quotes return to 0.7670 it will be an indication of the end of the rally.

The US dollar has strengthened against the yen as Fed Chair Janet Yellen reminded everyone that FOMC members still plan to raise rates despite subdued inflation figures. She said that it is premature to say that the inflation trend is below 2%. She also talked up the improvements in the US economy; her comments on labor market didn’t play so much to a dovish tilt (the labor market is quite tight; there might be pressure on wages). Yellen was also asked about the timing of the Fed’s plan to reduce balance sheet.

The US dollar gained some additional support from the US data showing the number of unemployment benefits fell last week for the first time in a month and producer prices somehow rose in June. In today’s spotlight, a number of other US economic indicators including CPI, retail sales and industrial production for June. The past three CPI releases were disappointing and there was a sense in Yellen’s testimony that this wasn’t all “one offs”. Also, Fed’s Kaplan will be speaking and the UoM consumer sentiment will be released.

EUR/USD missed some points overnight sliding to 1.1368 from 1.1454 on dovish comments from ECB Governing Council member Rimsevics. He said that QE will continue for a few years as inflation is still far below the central bank’s goal. However according to the WSJ, Mario Draghi might begin discussion of reducing their bond purchase program next month in Jackson Hole. At the time of writing, the euro is trading near 1.1410. From here it will likely trade choppily, within a broad range of 1.1320 – 1.520.

Sterling spike towards 1.2960 in the Asian session. Yesterday we got some hawkish comment from Bank of England member McCafferty (he said that he will likely vote for a rate increase at the MPC meeting in August). The current technical outlook is still neutral. GBP/USD should move clearly above 1.3000 to indicate the start of the bullish phase.

The Canadian dollar remained near its strongest in over a year level after the Bank of Canada raised its benchmark rate this week for the first time since 2010. USD/CAD is at 1.2725 a few pips higher from its Wednesday’s low of 1.2676. The immediate resistance can be found at 1.2770 (yesterday’s high).

Anastasia Mileshkina

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