Morning brief for July 7

The yen was in today’s spotlight due to the Tokyo election on Sunday resulting in a big loss for the incumbent prime minister Abe and due to the swath of data out of Japan. Exit polls indicated the Liberal Democratic Party will likely win the fewest ever seats in the Tokyo assembly, forcing Abe to leave his post. Bank of Japan Q2 Tankan and Nikkei/Markit Manufacturing PMI beat market expectations and showed that Japanese economy is gathering steam. But as we saw early the indications of the heightened economic growth are discarded by the BOJ officials. They are centered on the inflation figures that are still hugely missing their target. USD/JPY ticked higher above 112.50 in the Asian session. There are several resistances ahead lying at 112.75, 112.80. The latter one may not be yielded easily. The technical outlook is still bullish, only a move below 111.30 will indicate the end of the bullish phase.

EUR/USD traded at 1.1412 not far away from last week’s high (1.1445 – the highest level in more than a year). The single currency got support from the expectations that the ECB is set to withdraw its stimulus. Jens Weidmann, head of Germany’s Buba and a member of the ECB’s rate-setting committee, said on Saturday that the ECB is working hard on moving away from its ultra-loose monetary policy. Later this week we will hear more comments from the ECB’s officials (Peter Praet and normally hawkish Eward Nowotny both speaking tomorrow). The pair will likely trade sideways in the upcoming sessions just a few pips lower from its recent highs.

Aussie lost momentum on Monday sliding to 0.7675 from 0.7712 (Friday’s high) after the lower than expected building approval print. During the next sessions, the Australian dollar has a chance to return its strength (especially if we get disappointing manufacturing figures from the US) and rise to 0.7720 – a quite strong resistance level.

Kiwi traded in Aussie’s fashion – lower from its last session. It dipped to 0.7316 from 0.7345. There is almost no catalyst for NZD to rise higher from the current level in the upcoming sessions. Most likely, NZD/USD will be trading sideways in the range of 0.7250 – 0.7375.

Loonie reached 1.2945 against the Us dollar on Friday. On Monday, the majority of currencies, it surrendered to the greenback. Oil prices extended their gains on Monday lifted by the first fall in US drilling activity in months. Brent futures are now at $48.85 per barrel. There is a room for further extension as Qatari problem is still not solved.

The pound fell around 0.2 percent to 1.2995 after the 8-day rally. Today’s focus will be on the UK manufacturing PMI which is due at 12:30 MT time. Apparently, the recent rally was overbought, so quotes moved lower. We remain optimistic and don’t lose our faith in the GBP. There is a room for extension towards 1.3020/1.3045. A break of the support at 1.2925 would put an end to the recent rally.

Anastasia Mileshkina