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USD/JPY stabilizes after hitting 139The Japanese yen is in positive territory today after starting the week with sharp losses. USD/JPY is trading at 138.22, down 0.34%. Japan releases a host of events on Wednesday, including retail sales and consumer confidence. Retail sales for July is expected to come in at -0.5% MoM, following a 1.4% decline in June. Consumer confidence remains weak, with a July estimate of 31.0, following the June read of 30.2. Japanese consumers are in a sour mood and nervous about the economy, and it's no surprise that they are holding tight to the purse strings as inflation continues to rise. The yen remains under pressure and took it on the chin after Fed Chair Powell's speech at Jackson Hole on Friday. Powell's brief speech went straight to the point, pledging to continue raising rates until inflation was brought under control. Powell pointedly said that one or two weak inflation reports would not cause the Fed to U-turn on its tightening, a veiled reference to the market euphoria which followed the July inflation report, which was lower than the June release. With the equity markets taking a tumble after Powell's speech, it appears that investors have finally gotten the Fed's hawkish message. Powell's speech removed any doubts about the Fed's plans to continue raising rates, but the size of the increases will depend not just on inflation, but also on other economic data. Overshadowed by Jackson Hole, US Personal Income and Spending data was weaker than expected. As well, the Core PCE index, the Fed's preferred inflation indicator, fell to 6.3%, down from 6.8% and below the forecast of 7.4%. If Friday's non-farm payrolls report is weaker than expected, it would be a clear indication that the sharp increase in rates is having its desired effect and the economy is slowing. In such a scenario, Fed policy makers may be more inclined to raise rates at the September meeting by only 50 basis points, rather than 75bp. USD/JPY is testing support at 1.3822. The next support line is at 137.01 1.3891 and 1.4012 are resistance lines
by OANDA
Euro rises to parity as ECB hints at 75bp hikeEUR/USD has edged higher today and is trading at the parity line. In the North American sesssion, EUR/USD is trading at 1.0019, up 0.57%. The US dollar has posted sharp gains against the major currencies, as Fed Chair Powell's hawkish speech at Jackson Hole left no doubt that the Fed will continue to tighten rates in its titanic battle with surging inflation. The euro, however, bucked the trend and posted strong gains on Friday but ultimately pared these gains, before moving higher once again today. The upward movement has been driven by hawkish comments at Jackson Hole from senior ECB members, including Isabel Schnabel, who is well-known for being a hawk. Shnabel said that the likelihood of high inflation becoming entrenched in expectations was "uncomfortably high" and argued that "central banks need to act forcefully". Latvian central bank Governor Martins Kazak was even more specific, stating that the ECB should be open to discussing 50 or 75 basis point moves. The ECB has raised rates but only to zero, well below the neutral rate of around 1.5%. This means that ECB policy continues to stimulate the economy, at a time when inflation and inflation expectations continue to move higher. The ECB will be hard-pressed to find the balance of raising rates without tipping the weak eurozone economy into a recession. Overshadowed by Powell's hawkish speech at Jackson Hole was a host of weak US releases. Personal income and spending data both missed expectations, while the Core PCE Index, the Fed's preferred inflation gauge, fell to 0.1% in July MoM, down from 0.6% in June and shy of the estimate of 0.3%. The weak numbers mean that the Fed may have to ease back on rate hikes, despite Powell's hawkish speech, as the data continue to indicate that the economy is slowing in response to the Fed's tightening. If upcoming releases indicate that the economy is losing steam, the dollar will be under pressure. EUR/USD has support at 0.9985 and 0.9880 There is resistance at 1.0068 and 1.0173
by OANDA
Euro slides as inflation jumpsThe euro is sharply lower on Friday and is currently trading just above the 1.04 line, down 0.76%. Eurozone CPI for June was higher than expected, at 8.6% YoY. The estimate stood at 8.4% and inflation rose sharply from the May reading of 8.1%. This marked a record-high. There was better news from the core reading, which dropped marginally to 3.7% YoY, down from 3.8% in May. Investors have given the inflation data a thumbs-down today and sent the euro tumbling ahead of the weekend. With inflation continuing to accelerate and the ECB revising downwards its growth forecast, the spectre of stagflation in the bloc remains very real. The ECB is no doubt dismayed that inflation was higher than expected, but it's unclear if the record-high CPI release will be enough to deliver a supersize 0.50% hike for its lift-off next month. At this week's ECB forum, ECB head Lagarde talked tough and downplayed concerns over a recession, but there are plenty of dark clouds hovering above the eurozone economy. High inflation, weak growth and the energy crisis with Russia mean that there is certainly good reason to be concerned about a significant downturn in the eurozone economy. In the US, there are worrying signs that the economy is weakening. US Personal Spending fell to 0.3%, down from 0.6% (0.4% exp.). Inflation appears to be declining slowly and the labour market is in solid shape. CME's FedWatch is putting the likelihood of a supersize 0.75% rate increase at 75%, as markets expect the Fed to remain aggressive against inflation. Can a recession be avoided? Fed Chair Powell is saying all the right things in downplaying concerns about the "R" word, but many market participants have their doubts and feel that the US economy will not be able to avoid a recession. .
by OANDA