U.S. and UK Inflation Reports The Key Events of the Day

Yesterday’s session was quiet in the European front keeping the single currency higher against the other major currencies. On the other hand, limited news came out from the U.S., plunging the domestic currency against all of its counterparts. The sterling lost significant ground on concerns that Brexit hit hard the economic indicators coming out today later in the day.

U.S. Dollar Lower on Downbeat Data

The greenback fell after the release of the Empire State Manufacturing index revealed that fell to the three-month low of -4.21 in August, missing forecasts of 2.50. On the other hand, the National Association of Home Builders (NAHB) unveiled its housing market index for August, which marginally improved to 60 points in August from 59 points in July. Meanwhile, no European economic indicators nudged the single currency on Monday. Today, the German ZEW Survey and Euro area’s trade balance will be out.

EUR/USD – Technical Outlook

As usual, financial activity started in slow motion this week, fuelled further by half Europe being down on August holidays. The EUR/USD pair continues to lack directional strength and consolidating near its recent highs, around 1.1200. The pair trades flat for a fifth consecutive day, stuck around the middle of the sideways channel, which started back in early 2015, with 1.1600 capping any moves to the upside and the 1.0450 – 1.0520 zone propping it up. Also, on the daily chart, the pair has been choppy and fairly directionless as it remains a tight range between 1.0825 and 1.1600. Back on the weekly chart, the 1.0825 – 1.0950 is ready to provide a significant support to the price action in case of a pullback while the 100-SMA near 1.1330 will be the first obstacle for the bulls in the near term.
Meanwhile, technical indicators are neutral. RSI has flattened out just around the mid-point at 50 while the stochastic has dropped to 50. In addition, MACD has flattened and is hovering just above the 50 level. Therefore, it leaves the outlook unchanged for now.

GBP Traders Expect A Slew of Economic Data Today

On Monday, the pound experienced its sixth negative daily session in the last seven sessions against the pound. The slew of economic data coming out today will give us a clearer picture of how much Britain’s decision to leave the European Union affected the British economy. A report from Rightmove released on Sunday night, showing house prices fell by 1.2% in July has added to concerns about the property market amid signs of a significant slowdown. The data scheduled to come in up later in the day is vital to gauge if Bank of England will roll-out further stimulus.

GBP/USD – Technical Outlook

The British pound recovered ground early Tuesday against the U.S. dollar, bouncing from a daily low set at 1.2863 on the back of dollar's weakness. There was little driving the market, but the pound found support following the aggressive sell-off below the significant level at 1.3050. The pair, however, held below the latter level, and the technical picture in the short term shows a limited upward potential.

Technically, the strong downward momentum remains intact as in the daily chart, the price is below its 50-SMA, and the technical indicators have turned south within the negative territory. In the 4-hour chart, a bearish 50-SMA capped the upside, near 1.3050, while the technical indicators have turned flat above their mid-lines, after recovering from near oversold readings, suggesting for an upside pullback. The pair needs to recover above the mentioned 1.3050 level to be able to resume its advance and attempt a test of the August high, at 1.3370. Therefore, for now, we would expect the pair to recover towards the 1.3050 area, which coincides with the 4-hour 50-SMA and 100-SMA before continuing south. On the other hand, no clear direction on the daily timeframe, so medium-term holders can enjoy their August holiday’s while the short-term traders should watch the 1.3050 level.

USD/JPY – Technical Outlook

The USD/JPY pair edged modestly lower the last few days, as the Japanese yen retains its bullish strength against the top three (EUR, USD, and GBP) beyond risk sentiment. The pair declined over the last several days by more than 700 pips, in what is considered a technical correction of the trend. 

Technically, the pair continues pressuring the 99.00 – 99.85 critical support zone, below the 50% Fibonacci retracement. The pair now has completed four consecutive weekly negative sessions, extending the monthly losses to 1.75%. According to the 4-hour momentum indicators further losses look possible, where the initial targets will be at 96.00, which includes the 61.8% Fibonacci retracement level. On the daily chart, the Momentum indicator continues south, while the RSI hovers around 30, with a strong directional strength. In this last time frame, the 100-SMA has extended its decline below the 200-SMA. Therefore, we remain strong bearish on USD/JPY, with the first target being the significant level at 96.00, over the medium term.

What to watch today

We have significant data coming out today from U.S., UK and Eurozone. The UK inflation is coming out as well as the inflation report hearings. The consumer prices are expected to drop 0.1% in July compared to the month before that picked up 0.2%. No changes are expected to the annual rate of 1.5%. The input producer prices are anticipated to have a weaker growth of 1.0% from 1.8% the previous month while the output producer prices to remain on a small stable rate of increase at 0.2%.

Afterward, the German ZEW survey is expected to show a small increase to German current conditions in August and a sharp rise in economic sentiment at 1.0 from -6.8 before. No forecast is available for Eurozone’s ZEW economic sentiment.

Going to U.S., inflation and housing report will hog the limelight. Building permits for July are expected to rise while the housing starts are anticipated to have a slight decrease. The consumer price index is expected to grow 0.1% compared to the month before that rose 0.2% while on an annual basis it is expected to keep the same pace of growth of 1.0%.  Both July’s industrial and manufacturing production are predicted to advance 0.3% from 0.6% and 0.4% respectively in June.

New Zealand’s dairy trade auction will take place later in the afternoon. During the night, New Zealand’s employment report will be published. The unemployment report for the second quarter is expected to fall to 5.2% from 5.7% before.