US Dollar Bounces Back From 4-Month Lows

Daily Analysis - 14/08/2017

Safe-Haven Demand Eases Despite Accelerated Japanese Growth

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The US dollar is holding ground above a four-month low against the Japanese Yen as heightened tensions between the United States and North Korea remains a focal point for investors. Geopolitical concerns withstanding, the greenback is firming following softer-than-expected US inflation data reported last Friday.

Japan Second Quarter GDP Blows Past Expectations


The Japanese economy grew at its fastest pace in over two years in the three months through the end June, recording a sixth straight quarter of expansion according to official data unveiled earlier on Monday. Gross domestic product increased at an annualized pace of 4.00% during the second quarter per preliminary estimates released by the country’s Cabinet Office. That pace of growth came in well above the revised growth figure of 1.50% recorded during the first quarter and easily topped the consensus forecast of 2.50%.

On a quarterly basis, GDP rose 1.00% versus a revised 0.40% increase experienced in the previous quarter and far above the consensus estimate of a 0.60% incline. The Yen reaction was predominantly negative in response to the latest GDP numbers, with the USDJPY pair rallying higher to around the 109.550-mark ahead of the European market open.

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US Inflation Remains Subdued


Consumer prices in the United States rose marginally in July, suggesting benign inflation could convince a cautious Federal Reserve to delay hiking interest rates until December. Data delivered by the US Department of Labor on Friday showed that the consumer price index rose by 0.10% in July from the previous month. Excluding volatile items like food and energy, core prices also increased 0.10%. Economists polled by the Wall Street Journal had anticipated headline and core consumer prices to both edge 0.20% higher on the month.

From a year ago, consumer prices advanced 1.70% in July. The tame inflation despite an improving labour market remains a conundrum for the Fed as it contemplates further tightening monetary policy. Wall Street ended modestly in the green on Friday, with S&P 500 futures extending gains following the weekly reopening early Monday to currently trade below strong resistance standing at 2450.

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China Factory Output and Retail Sales Disappoint


Chinese industrial output decelerated more than forecast in July, while retail sales also came in weak, reinforcing fears that the world's second largest economy is starting to lose momentum as lending costs rise. Overnight figures showed that factory output increased 6.40% last month from a year earlier to notch the slowest pace of growth since January.  Analysts surveyed had projected annualized factory output growth tapering to 7.20% in July compared to 7.60% reported a month prior.

Retail sales rose 10.40% in July on a year-over-year basis, decelerating from June's 11.00% pace while failing to meet the consensus estimate for a 10.80% gain. Separately, Chinese fixed-asset investment climbed 8.30% in the first seven months of the year, undershooting the median estimate of 8.60% growth projected by a Reuters poll. USDCNH is adding to Friday’s gains following the data, with the pair pulling back from earlier highs to last trade around 6.6790.

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French Private Sector Job Growth Accelerates


Growth in French private sector employment accelerated by the fastest tempo in six years during the second quarter of the year.  Data from federal statistics agency INSEE on Friday indicated that the country’s economy added 91,700 new jobs in the private sector, representing a 0.50% increase quarter-over-quarter. The three months through the end of June marked the 11th consecutive quarter of new private sector job creation on a net basis.

The steady growth is gradually helping France's labour market heal from the huge job losses it experienced after the 2008 global financial crisis. However, the pick-up is yet to significantly bring down the aggregate unemployment rate as more individuals continue to enter the workforce. CAC 40 futures closed last week sharply lower to trade just above key support sitting at 5050 before opening higher at the outset of the European equity session.

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