EU INFLATION RISES AS Q2 GDP DROPS TO 2-YEAR LOWS

The Japanese Yen fell against its global peers after the Bank of Japan released its monetary policy decision. As expected, the bank left interest rates unchanged. What was not expected was the bank’s plan to leave the monetary policies at the crisis-level lows. After being forced to intervene three times since last week, traders expected the bank to change its language. In a press conference, Haruhiko Kuroda announced that the officials were in consensus on the need to leave these policies for an ‘extended period of time’. The Fed started normalizing in 2014, the ECB started winding down the QE in 2017, and the Bank of England is expected to have a rate hike this year.

The Euro jumped against the dollar after data from the European Union showed that inflation was rising. In July, the CPI rose at an annualized rate of 2.1%, which was higher than the expected 2.0%. The core CPI – which excludes volatile food and energy products – rose by 1.1%, which was higher than the expected 1.0%. Retail sales in Germany rose by an annualized rate of 3.0%, which was higher than the expected 1.5%. On a MoM basis, retail sales were 1.2%, which was higher than the expected 1.1% and higher than June’s 1.6% decline. While inflation and retail sales numbers were positive for the euro, the region’s GDP numbers missed estimates. The first preliminary reading for the GDP for the second quarter showed a 2.1% increase. This was lower than the expected 2.2% expansion. It was the lowest growth in two years.

The Canadian dollar jumped today after upbeat GDP numbers. The numbers showed that the economy expanded by an annual rate of 2.6%, which was higher than the expected 2.3% and the previously released 2.5%. In June, the economy expanded by 0.5%, which was higher than the expected 0.3%. This was the fastest growth since July last year. Meanwhile, in the United States, data from the Bureau of Economic Analysis showed that personal income grew by 0.4% which was in line with expectations. Personal spending, on the other hand, rose by 0.4% which was in line with the expectations.

EUR/USD

The EUR/JPY pair climbed to an intraday high of 1.1745. This was the highest level since Thursday last week. The rise was caused by the inflation numbers which are stabilizing at the ECB’s target of 2.0%. The 1.1745 level reached by the pair was an important level of resistance as shown below. This price is above the 50 and 100-day EMA, and the Relative Strength Index (RSI) has been near the overbought level. The pair has formed a cup pattern as shown below. This means that there is a likelihood that it will fall slightly to complete the handle pattern. This will see the pair testing the 1.1700 level.

USD/JPY

After trading within a narrow range for days, the USD/JPY pair broke out in the upside direction. The pair rose to an intraday high of 111.58, which was the highest level since June 20. Its RSI is currently at 60 and is nearing the overbought level of 70. The pair will likely consolidate within these levels as traders wait for the Fed statement on Thursday and the jobs numbers which will follow on Friday.

US30

The Dow Jones Industrial Average rose yesterday after the terrific quarter by Caterpillar. The jump yesterday was a continuation to the upward trend that started in early July as shown below. The ease of trade tensions between the US and the EU also contributed to the positive performance. As the pair jumped yesterday, it crossed the two-month high of $25400. The current price is above the 50 and 100-day EMA, and the ADX (Average Directional Index) has dropped to 15. This is an indication that the index could start consolidating at these levels or see a minor drop as bulls take profits.