Fundamentals to lead the markets

USD weakens from the softer than expected US employment data

In the FX market, the USD lost ground across the board, as the US employment report displayed a cooling of the US employment market for June beyond market expectations.

The NFP figure dropped to 57k, far lower than the anticipated 110k figure, yet the effect may have been moderated somewhat by the tick down of the unemployment rate. It should be noted that the release dimmed the market’s expectations for the Fed to tighten its monetary policy.

The market now expects the bank to proceed with a rate hike in September and keep rates unchanged in December. We see the case for the bearish effect to be maintained for the greenback.

We also note that It’s a public holiday in the US today, thus US equity markets are to be closed and thin trading conditions may apply also in the FX market during the American session, as traders will be away from their desks.

BoJ maintains threat for a possible market intervention

Meanwhile in Japan, JPY got some substantial support against the USD, and despite the market’s suspicions for a possible market intervention by the Japanese government, the support JPY got was too small to support this theory.

It should be noted that the JPY also gained against the USD as the weaker than expected US employment report for June weighed on the greenback allowing the pair to edge lower.

Nevertheless, the Japanese government maintained its threat for a possible market intervention as Japanese Finance Minister Satsuki Katayama stated that Japan remained in close contact with the US about forex market issues. In our opinion, on a fundamental level, we still see the Japanese Government’s expansionary fiscal plans as weighing on the JPY, given the XXL size of the Japanese debt. Hence, we may see the markets continuing to sell the Yen, with carry trade possibly being an additional factor enhancing the bearish effect on the JPY.

It should be noted that converging interest rate outlooks of BoJ and the Fed tend to reduce carry trade, as interest rate differentials are narrowed.  

Other highlights for today

In an easy going Friday we note the release of Turkey’s CPI rates and Euro Zone’s Composite and the UK’s final Services PMI figures, all for June, while later on BoE Governor Bailey speaks.

After BoE Policymaker Mann’s hawkish comments yesterday, should BoE Governor Bailey suggest that rate hikes are off the table or maintain a more dovish tone, it could weigh on the pound.

Charts to keep an eye out

USD/JPY corrected lower yesterday hitting the 160.50 (S1) support line in today’s Asian session.

As the upward trendline guiding the pair since the start of May has been broken we switch our bullish outlook in favour of a sideways motion bias.

The drop of the RSI indicator to the reading of 50, also tends to imply a relatively indecisive market that may allow the sideways motion to continue. Yet bearish tendencies may be renewed, and should the bears fully take over, we may see USD/JPY breaking the 160.50 (S1) support line and start aiming for the 157.50 (S2) support level. Should the bulls renew their dominance over the pair’s direction, we may see USD/JPY actively aiming if not reaching the 164.40 (R1) resistance level.

WTI’s price tended to stabilise just below the 69.00 (R1) resistance line. The downward trendline guiding the commodity’s price seems about to be broken, and if actually so we would switch our bearish outlook in favour of a sideways motion. Yet the RSI indicator remains at low levels, implying the continuance of the bearish market sentiment for WTI’s price.

Should the bears regain control over WTI’s price we may see it nearing the 60.90 (S1) support line. Should the bulls take over we may see WTI’s price breaking the 60.90 (R1) resistance line and start aiming for the 76.60 (R2) resistance level.

USD/JPY Daily Chart

• Support: 160.50 (S1), 157.50 (S2), 155.00 (S3)
• Resistance: 164.40 (R1), 168.00 (R2), 171.60 (R3) 

WTI Daily Chart

• Support: 60.90 (S1), 55.00 (S2), 46.35 (S3)
• Resistance: 69.00 (R1), 76.60 (R2), 82.00 (R3) 

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