Sterling falls after weaker-than-expected Q2 growth data
The sterling declined sharply after the Office of National Statistics (ONS) released preliminary data for the second quarter. The number showed that the economy grew at a smaller pace than what the market was expecting. On a QoQ basis, the economy contracted by -0.2%. This was the first contraction in almost seven years. The decline was blamed on the growing uncertainties over Brexit, weakening global growth, and the unwinding of the stockpiling activity. On an annualized basis, the economy expanded by 1.2%, which was below the first quarter’s growth of 1.8%. Meanwhile, manufacturing production declined by -1.4%, which was worse than the expected decline of -1.1%. Industrial production declined by -1.2% in June after rising by 1.2% in the previous month.
European stocks and American futures declined as investors continued to focus on the ongoing trade war between United States and China. In a report yesterday, Bloomberg said that the US was holding off its decision to allow companies to continue doing business with Huawei. This is after China stopped buying soybeans and other farm products from the US. Analysts believe that the trade war could continue until the 2020 election because of the hard lines the two countries have put in place. Meanwhile, Huawei launched a new operating system for mobile devices. In corporate earnings, Uber announced that it made a $5.2 billion loss in the last quarter.
The Japanese yen gained today after the country released its GDP data. In the second quarter, the economy expanded by 0.4%. This was better than the consensus estimate of 0.1% but lower than the Q1 growth of 0.6%. On an annualized basis, the economy expanded by 1.8%, which was better than the expected growth of just 0.4%. In the quarter, capital expenditure increased by 1.5%, which was better than the expected growth of 0.7%. Meanwhile, in China, consumer prices increased by an annualized rate of 2.8%, which was slightly higher than the previous 2.7%. In Germany, exports contracted by 0.1% while imports increased slightly by 0.5%.
The EUR/USD pair moved up slightly to a high of 1.1207. This was slightly higher than yesterday’s low of 1.1175. On the hourly chart, the pair is trading between the 1.1167 and 1.1250 channel. The pair is trading along the 14-day and 25-day moving averages and slightly above the teal support shown below. The pair will likely remain within this channel in the US session because there is no major data that is expected.
The USD/JPY pair declined slightly after Japan released better-than-expected economic data. The pair is trading at 108.80, which is above the important double bottom of 105.50. On the hourly chart below, the price is slightly below the 14, 28, and 50-day EMA. The RSI has been relatively unmoved and is trading at the 40 level. With no major data expected from the US today, the pair will likely maintain the current holding pattern.
The GBP/USD pair declined sharply to an intraday low of 1.2065. This was the lowest level the pair has been since 2017. On the daily chart below, the pair is below all the moving averages. The RSI has moved below the oversold level of 30 while the pair is trading along the lower line of the Bollinger Bands. The pair will likely continue moving lower because of the ongoing volatility in the UK.