Job conditions in Japan are likely to worsen further as the economy struggles to recover from the Covid-19 pandemic, which followed a slump caused by consumption tax increase in October 2019, SMBC Nikko Securities says. Deteriorating jobs conditions aren’t fully reflected in the jobless rate as some workers are asked to cut working hours, the brokerage says.Japan’s jobless rate was 2.8% in June, up from 2.2% in December. The government’s financial support for employers to keep jobs is likely to help prevent jobless rate from shooting up, it says. SMBC Nikko expects the economy to return to pre-tax hike levels around the end of 2023.
EUR/USD advanced 0.4% to 1.1832. Official data showed that Germany’s second-quarter GDP was confirmed at -9.7% on quarter (-10.1% expected and previously estimated). On the other hand, the German IFO Business Climate Index rose to 92.6 in August (92.2 expected) from 90.4 in July.
German GDP nose-dived in the second quarter. The initial estimate in July showed that the eurozone locomotive sustained a double-digit drop, with a decline of 10.1%. However, there was some good news on Tuesday, as the decline was not quite as steep as expected. The final GDP reading was revised upwards, to -9.7%. Still, this marked the sharpest decline in quarterly GDP since records were first kept in 1970. The Covid-19 pandemic has caused severe economic damage in the eurozone, and Germany has not been immune. In particular, German consumer spending and exports were down sharply in the second quarter.
Elsewhere, German business confidence continues to move higher. German Ifo Business Climate accelerated for a fourth straight month, rising from 90.5 to 92.6 in August. Is the worst of the economic downturn behind us? Ifo President Clemens Fuest was encouraged by the release, declaring that “the German economy is on the road to recovery”.
👉 S&P 500 (+0.36%) and Nasdaq (+0.76%) extended the rally to new all-time highs on the optimism surrounding the US-China trade talk. Tech rally and strong housing market data offset the unexpected drop of consumer confidence in August. Dow -0.21% after the re-weighting of the index.
👉 The US dollar index (USDX) dipped to 93.01, while the yield on 10-year Treasuries increased to 0.68%. USD/JPY surged to 106.39 despite the USD weakness. Regarding U.S. economic data, the Conference Board Consumer Confidence Index dropped to a six-year low of 84.8 in August (93.0 expected). New Home Sales jumped to an annualized rate of 901,000 units in July (790,000 units expected).
👉 EUR rose to 1.1833 on the upbeat German IFO business climate index, which increased for a fourth consecutive month. Q2 GDP in the EU’s largest economy was upgraded to -9.7% from -10.1%. G10 outperformer GBP advanced 0.67% to 1.3150. European stocks lacked upward momentum. The Stoxx Europe 600 Index declined 0.30% and the U.K.’s FTSE 100 shed 1.11%, while both Germany’s DAX 30 and France’s CAC 40 were broadly flat at close.
👉 Gold closed lower at $1927.81 amid the risk-on mood, struggling around the 23.6% retracement level of the March-August rally. U.S. WTI crude oil futures (September) jumped 1.7% to $43.35 a barrel. Hurricane Laura is expected to reach the Gulf of Mexico later this week and traders are watching closely how oil output there would be disrupted.
👉 Positive headlines on US-China relations boosted high-beta currencies. GBP/USD rose 0.6% to 1.3147. USD/JPY climbed 0.4% to 106.37, up for a second straight session. NZD/USD gained 0.3% to 0.6546. Official data showed that New Zealand recorded a trade surplus of 282 million New Zealand dollars (293 million New Zealand dollars surplus expected), where exports totaled 4.91 billion New Zealand dollars (as expected). As market sentiment was boosted by progress in the U.S.-China phase-one trade deal. AUD/USD rose 0.5% to 0.7193, while USD/CAD slid 0.4% to 1.3168.
As we have observed earlier in the Currency Monitoring Chart, we discovered that EUR/NZD lines are separated with the farthest distance.
The following is GBP/JPY looking at 4 hour chart:
INTRADAY MARKET INSIGHTS
Turning up. The pair has just bounced to the upside after locating a key support at 106.30 (around the lower Bollinger band). Currently it is striking against the upper Bollinger band calling for acceleration to the upside. A further rally should push the pair towards 106.70 and 106.85 on the upside. Alternatively, a break below 106.30 would open a path toward 106.15 on the downside.
Upside prevails. The pair keeps trading on the upside after crossing above a declining trend line drawn from Aug. 19. Currently it stays at levels above both 20-period and 50-period moving averages, holding the intraday bias as bullish. A further advance should bring the pair to 1.1850 and 1.1880 on the upside. Only a return to the key support at 1.1805 would bring about a bearish reversal.
Further advance. The pair struck to the upper Bollinger band, calling for an upward acceleration. The upward momentum is further reinforced by both rising 20-period and 50-period moving averages. To conclude, as long as the support level at 0.7180 is not broken, look for a further upside with targets at 0.7215 and 0.7230 in extension. Alternatively, a break below 0.7180 would bring a return with 0.7165 and 0.7150 as targets.
Rebound expected. The pair posted a rebound and crossed above both 20-period and 50-period moving averages. The relative strength index is locating at the buying zone between 50 and 70, indicating a bullish outlook. To conclude, as long as 0.6526 holds on the downside, expect a rise to 0.6577 before targeting 0.6590 in extension. On the other hand, a break below 0.6526 would open a path to 0.6503 on the downside.
Further upside. The technical outlook of the pair is positive as the prices are trading within the bullish channel. The relative strength index is locating at 60s, suggesting a upside momentum for the pair. To conclude, unless the support level at 1.3115 is violated, the pair should rise to 1.3170 and even to 1.3200 in extension. In an alternative scenario, below 1.3115, expect a return with 1.3080 and 1.3050 as targets.
Under pressure. Although the pair posted a rebound, it is still capped by both declining 20-period and 50-period moving averages. The relative strength index stays below its neutrality level at 50, showing the lack of upward momentum for the prices. In this case, as long as 0.9100 acts as the key resistance level, expect a drop with targets at 0.9055 and 0.9035 in extension. Alternatively, crossing above 0.9100 would trigger a technical rebound with 0.9120 and 0.9135 as targets.
Downside prevails. The pair has retreated after reaching the upper boundary of its recent trading range. Currently, it is trading at levels below both the 20-period and 50-period moving averages, while the relative strength index has dropped below 30, signaling a bearish bias. Below the key resistance at 1.3190, expect a decline to 1.3130 and 1.3110. Alternatively, a break above 1.3190 would trigger a rebound to 1.3210.
Further upside. The pair has broken above a bearish trend line drawn from Aug. 13. In fact, the 20-period moving average has moved further above the 50-period one, while the relative strength index has climbed to the 60s, indicating a bullish bias. Unless the key support at 125.61 is violated, the pair should advance to 126.28 and 126.46. Alternatively, a break below 125.61 would trigger a pull-back to 125.31.
Bullish bias remains. The pair maintains a bullish bias above the key support at 0.8981. Currently, it has rebounded and is challenging the 20-period moving average, while the relative strength index shows upward momentum. As long as the key support at 0.8981 holds, the pair should target 0.9026 and 0.9037 on the upside. Alternatively, a break below 0.8981 would open a path to 0.8962 on the downside.