EUR/USD: All Eyes On Jackson Hole Now!

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EUR/USD: All Eyes On Jackson Hole Now!

• As we expected, US GDP revision showed much better data than the initial reading. GDP expanded at a 3.7% annual pace instead of the 2.3% rate reported last month. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.1%, rather than the 2.9% pace reported last month.
• Underscoring the economy’s solid fundamentals, a measure of private domestic demand, which excludes trade, inventories and government expenditures, increased at a 3.3% rate, instead of the previously reported 2.5% pace. Consumer spending got off a to brisk start in the third quarter, with retail sales rising solidly in July. A strong labor market, cheaper gasoline and relatively higher house prices, which are boosting household wealth, are helping to support consumer spending.
• Investment in nonresidential structures was revised to show it rising at a 3.1% rate, reflecting stronger spending on commercial and healthcare construction. It was previously reported to have contracted at a 1.6% pace. Spending on residential construction was raised to a 7.8% pace from a 6.6% rate. Business spending on equipment was not as weak as initially thought.
• The trade deficit was smaller than previously reported, adding 0.23 percentage point to GDP growth.

• Labor market data are also still very good. Initial claims for state unemployment benefits slipped 6k to a seasonally adjusted 271k for the week ended August 22. It was the 22nd straight week that the four-week average remained below the 300k threshold, which is usually associated with a strengthening labor market.Continuing claims were little changed between the July and August survey periods, suggesting the jobless rate likely held at a seven-year low of 5.3%.
• Despite strong macroeconomic data Fed policymakers are softening their rate hike stance. Kansas City Federal Reserve Bank President Esther George, who has been arguing for a near-term US rate hike, said the Fed should now take a “wait and see” approach to hiking borrowing costs due to financial volatility and China’s economic slowdown. However, she made clear she was not ruling out the possibility she would support a rate increase as early as September. She said: “I do not want to take too much signal from something that could turn out to be noise. I don’t want to overreact to short-term data that may not in the long term really turn out to be significant for that kind of decision”.
• Today the great and the good of the central bank world have gathered in Jackson Hole and we can expect plenty of soundbites out of the symposium. The most interesting events are scheduled for Saturday, when we have panel discussion on global inflation dynamics with Federal Reserve Vice Chairman Stanley Fischer, Bank of England Governor Mark Carney, European Central Bank Vice President Vitor Constancio.
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Significant technical analysis’ levels:

Resistance: 1.1310 (200-dma), 1.1364 (high Aug 27), 1.1370 (low Aug 24)

Support: 1.1203 (low Aug 27), 1.1189 (high Aug 14), 1.1154 (61.8% of 1.0808-1.1715)

 

GBP/USD: Will BoE Expectations Turn More Hawkish After Carney’s Speech?

• The Office for National Statistics said British GDP rose by 0.7% in the second quarter of this year, confirming a preliminary reading. Net trade boosted GDP by 1.0 percentage points on the quarter, the biggest contribution from trade in four years, as exports jumped.
• Business investment rose 2.9% qoq, the highest in a year. Household spending grew 0.7% qoq, slowing slightly from 0.9% in the first quarter. Consumer sentiment has been supported by subdued inflation, record low interest rates and a rising GBP that allows for cheaper imports. On the other hand, strong GBP that makes British goods more expensive abroad, may be an obstacle to keep exports at current levels.
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Significant technical analysis’ levels:

Resistance: 1.5508 (hourly high Aug 27), 1.5550 (daily cloud base) 1.5586 (30-dma)

Support: 1.5330 (low Jul 8), 1.5191 (low Jun 5), 1.5170 (low Jun 1)

 

USD/JPY: Japan’s Inflation Keeps BOJ Under Pressure

• Japan’s core consumer price index, which includes oil products but excludes volatile fresh food prices, was unchanged in July from a year earlier, against a median market forecast for a 0.2% drop. That was the slowest pace of growth since May 2013, with sharp declines in oil offsetting price rises for a growing number of items like hotel rooms and television sets.
• Household spending fell 0.2% yoy in July, confounding forecasts for a 1.3% rise and reinforcing concerns on the strength of Japan’s recovery. Big-ticket items such as cars and housing renovations remained particularly weak, a sign consumers were still reluctant to spend after splashing out ahead of last year’s sales tax hike.
• Policymakers sound sanguine for now with BOJ Governor Haruhiko Kuroda saying that China’s slowdown is unlikely to hit Japanese exports much. Kuroda maintained his optimism that despite overseas headwinds, Japan can hit the BOJ’s inflation target without additional monetary stimulus. He added the oil drop would only temporarily impact overall prices. But Kuroda added the BOJ would certainly ease monetary policy if needed to achieve its price target, stressing many options were available. In our opinion the likelihood of further BOJ easing steps are low. Many BOJ policymakers are hesitant to raise asset purchases, wary of the program’s rising costs and distortion to the government bond market, which is increasingly dominated by the BOJ. However, some market participants expect additional monetary stimulus as soon as in October.
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Significant technical analysis’ levels:

Resistance: 121.40 (high Aug 27), 122.28 (100-dma), 122.37 (daily cloud base)

Support: 120.65 (session low Aug 28), 120.40 (high Aug 25), 119.80 (low Aug 27)