The London open has started off cautiously as data points pre the opening bell came in under market expectations. We are also in US earnings season, so the market is likely to wait for those data points to come out each day before making large moves in the equities. Awaiting further central banker statements and Powell’s testimony is also going to slow things down.
At the London open the currency heatmap tells a story of market uncertainty. Yesterday the commodity pairs were more bullish due to Hawkish tones from the RBNZ and BOC, but during today’s overnight session the Chinese Gross Domestic Product (GDP) reading came in slightly below the analysts’ expectations. A slowdown in China’s factory activity, higher raw material costs, and new COVID-19 outbreaks added to the negative reading. Couple that data point with rising fears around COVID-19 Delta infections in Australia, Asia, and the UK, we have the grounds for a more cautious start to the day.
The US session has the next major Tier-1 data points with Initial Jobless Claims, Philly Fed Manufacturing, and Industrial Production data all coming in before the 2nd part of Fed Chair Powell’s testimony to Congress.
The US dollar index is in a consolidation channel but is trending higher still. $93 may be the key resistance level and correcting over time rather than price is going to allow the 20 and 50 daily exponential moving averages to rise above the 200 ema. On the Golden cross, traders may feel more confident in adding to their longs.
GBPUSD price action shows that yesterday was an inside day and with worse than expected unemployment data and a dollar that refuses to go down, today could be a red day for cable. The unemployment rate in the UK edged up to 4.8% in the three months to May of 2021, compared to market forecasts of 4.7%.
The Office for National Statistics employment report had some good news as it stated “The number of payroll employees showed another monthly increase, up 356,000 in June 2021 to 28.9 million. However, it remains 206,000 below pre-coronavirus (COVID-19) pandemic levels. For the first time since the beginning of the pandemic, some regions are now above pre-pandemic (February 2020) levels. These include North East, North West, East Midlands, and Northern Ireland.”
The UK Average Earnings Index rose to 7.3% for the 3-month moving average.
The ActivTrades sentiment indicator for GBPJPY shows that the majority of traders on the platform are bearish the pair, which is understandable from a recent trend perspective.
The GBPJPY has recently been making lower swing highs and lower swing lows in a descending channel but pulling out to reveal more price action over time shows that the overall pattern could be considered a bull flag.
Key support for the GBPJPY will be found between the rising trend line and the daily swing low from last week. The 151.00 price level is the line in the sand for me.
The NZDUSD is still within the larger range from mid-June to date, and after the US session closes the NZD CPI q/q reading is released. The policy divergence between the RBA and RBNZ is favoring the Kiwi versus the Aussie and further gains could be made to the short side in the AUDNZD.