White noise in the market

The pound has grown to a maximum in two weeks against all currencies of G10 on the unexpected growth of retail sales within a month

Last week of active publications and comments has shown that news from the USA is still the main drivers. Optimism of the market has run across rigidity of FRS, and influence of its negative rhetoric will remain, at least, till September 8. Any sufficient drivers of movement before Yellen performance at conference of FRS in Jackson-Hole (on August 26) - is not expected.

The pound has grown to a maximum in two weeks against all currencies of G10 on the unexpected growth of retail sales within a month. Inflation and requests for unemployment benefits show that the British economy advances estimations, and concerns concerning the future of Britain out of the world's largest trade block gradually decrease. Now we wait for planned actions from Bank of England which will limit any long-term strengthening of pound.

Data on inflation in the eurozone in July were rather negative, the protocol of a July ECB meeting has not helped to understand prospects of monetary policy. Euro obviously wins because of anti-dollar flows - last week the currency has practically won back fall against dollar (the price turn down on results of the English referendum was in a zone 1.1425).

Meanwhile demand for the American assets from foreigners actively falls: data of Monday on TICS have shown record minus (-$3.6 billion - bonds, $202.8 billion - actions). In such situation hardly imaging the dollar will be allowed to fall quickly so you should not expect a mid-term growth of euro against dollar so far. Here if FRS does not touch a rate and will let know that even in December increase of a rate is improbable, here then, perhaps, serious dollar downing, but up to this point will begin a month more.

General opinion following the results of the publication of FRS protocols: the committee is ready to a raising of the range of rates long ago, all conditions are almost reached, the labor market is normal, May easing with success is overcome, the full employment comes nearer, the British events do not interfere with the process. In September the chance of increase of a rate remains high, but the imminent internal political events reduce this probability to a notorious ratio 50/50.

Monetization of a national debt of Japan is well under way: the government plans to issue 40-year bonds. Now the regulator actively buys up long state bonds in the market (approximately for ¥30 trillion or $299.1 billion) that is not a guarantee of subsequent their placement at all. Today investors buy bonds only to get immediate profit by the return sale to bank. Such Asian analogy of use of «helicopter money» effect.

Verbal threats of interventions from BOJ in case of excessive movements in the market do not cause the corresponding reaction on yen and the corresponding cross-couples any more. In September radical transformations of the Japanese QE are not excluded (towards reducing, of cause), the Bank of Japan can review the purpose on increase in a monetary base though the most probable scenario all to be limited to thinner setup of parameters. Anyway on Tuesday morning we listen to Kuroda's performance attentively.

From other news we will note the following:

  1. According to the Ministry of Finance of Germany, the country does not need an allowance in the amount of €12.8 billion for needs of refugees. Tax revenues grow quicker, than it was expected though the surplus of number of the unemployed due to strong migration is estimated at 110 thousand people next year.
  2. Theresa May's team still inclines to the first half of the year 2017 as the best moment to start official negotiations. But the issue of application of article 50 is not resolved yet, the large equity already removes the central offices from the London City - and much quicker, than their public messages tell about it. The cooperation of the British banks with the EU according to the Norwegian scheme is unlikely, therefore British Bankers Association has provided offers to the Prime minister May according to the scheme of Switzerland - this question is included in the plan of the next consultations on the EU Council.
  3. Though decisive steps across Brexit are more and more removed on time (up to the end of 2019), continue to use this factor as a justification of any inefficient actions: the Secretary of State of Italy for the EU declares that the delay concerning Great Britain will paralyze necessary transformations in the European Union as which initiator Italy has acted at the beginning of a year.
  4. According to the research S&P, today about 500 million people live in the world in conditions of negative interest rates of the Central Banks. World threat of «the return loop» accrues: low rates encourage excessive appetite to risk which satisfaction requires new quantitative mitigation. This policy can be proved only in one case: if it leads to acceleration of inflation and GDP, that just does not occur. Interesting the fact, that this research was published on the same day, as the ECB July meeting protocol. Sluggish dynamics of a payroll, low inflation expectations, Brexit and problems of the bank sphere threaten with delay of GDP and dynamics of consumer prices. Quite perhaps, in September the European regulator should expand scales or to prolong QE terms, and it is possible and to reduce rates.

Key point of next week - on Friday: Yellen and publications of data on GDP of Britain and the USA, perhaps, will show the direction of an autumn turn of the market.

EUR/USD: The current week trade in the range is recommended. Intraday resistance: (1.1320/1.1327) - (1.1360) - (1.1384/1.1395) (very strong); supports: (1.1250) - (1.1186) - (1.1138) - (1.1077) (very strong). In case of steady trade in higher than 1.1395 following purpose there can be very strong resistance (1.1417/1.1427) after which the possibility of increase will open till 1.1500. Morning falling at opening of week supports the movement down so far.

GBP/USD: Intraday resistance: 1.3145 - (1.3185/1.3208) - (1.3280/1.3350) (system of strong resistance); supports: 1.3010 - (1.2984/1.2960) - (1.2910) - (1.2882) (protection). Attempt to be fixed over the level 1.3000 which is border of medium-term risks is observed. Trade is lower than the level of a strike 1.2950 is dangerous by falling in a zone of annual minima.

USD/JPY: Couple has checked for durability low range in a zone of strong intraday support (100.20/100.09). The main resistance defining medium-term risks - 101.30. Steady growth higher than 101.80 is possible after Kuroda's performance, but in general is improbable. Trade is lower than supports (99.67/99.44) (strong) and 99.03 (weak) are dangerous by risks of falling to level 96.00 below.

作者: Navsher Bartash,
ForexChief Currency strategist