Market Update by Solidecn.com

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USDJPY

Next Friday (July 28), we await the BoJ's interest rate decision. However, this event does not seem to surprise the market, as earlier this week, BoJ Governor Kazuo Ueda communicated that the Bank would maintain its ultra-tight monetary policy

As Reuters reported, the BoJ was due to deliberate this month on changes to the operation of the YCC (yield curve control programme). When asked about this, Ueada said that as long as everything pointed to a return to the 2% inflation target, the BoJ would not change its monetary policy.

A weak yen may boost profits for Japanese exporters, but it raises the price of energy and other yen imports for businesses and consumers. Despite rising inflationary pressures, Japan is trying to stimulate the economy in the face of broad market uncertainty, Ueda added.

In the long term, however, this situation may change. The Japanese government today lowered its economic growth forecast for the current fiscal year and raised its inflation outlook. The proximity of these updates to the BoJ's next meeting raises heightened curiosity, but nevertheless the chances of actual monetary changes (if any) do not appear to be warranted anytime soon. In this regard, tomorrow's CPI data for June (00:30 am BST) may tell us a little more.

1. GDP growth forecast for 2023/24 at 1.3% (previously 1.5% in January)
2. Growth forecast for 2024/25 financial year at 1.2%
3. Inflation forecast for 2023/24 at 2.6% (previously 1.7%)
4. Inflation forecast for 2024/25 at 1.9%

The USDJPY pair is currently testing the psychological 140 zone. In the short term, the most important support and resistance zones to watch will be the previously mentioned 140 zone and the 50-day EMA (blue curve) and the zone of recent local minima (green zone).

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GBPUSD

The GBPUSD pair goes below the psychological barrier of 1.3 and paves the way to the next important support levels set by the 200-week EMA (golden curve) and the abolition of the 61.8% Fibo of the February 2021 downtrend wave. It is worth bearing in mind, however, that the market does not seem to be unduly changing expectations for further rises, so the risk of a continuation of the ongoing upward wave is still there.

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Dollar Slides ahead of Retail Sales Data

The EURUSD continues to rise, mainly due to the weakness of the US dollar following the release of inflation data last week. EURUSD has reached the highest levels since before the Ukraine war and is testing very important resistance levels. Today, the market's attention will be focused on the publication of retail sales and industrial production from the US. Expectations point to a pretty solid report:

Moreover, the retail sales report will be the last important indication before next week's FOMC meeting (we will no longer hear comments from Fed bankers due to the closed period). At the moment, the money market is pricing that the FED will raise rates by 25 basis points on Wednesday 26 July with a 95% probability.



EURUSD is testing the vicinity of an important resistance at the 61.8 Fibo retracement of the entire large downward wave started in 2021. A break of this level will mean a negation of the entire upward impulse of the dollar from almost the last 2 years. If retail sales surprise even more strongly than the consensus indicates, a correction to the range 1.1180-1.1200, where the upper limit of the upward trend channel is located, will be possible.

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Bitcoin

• Bitcoin struggles to maintain the $30,000 level
• Extreme emotions in cryptocurrencies

Last week, we wrote about the euphoria surrounding BTC, XRP, and other cryptocurrencies after XRP won the case against the SEC in court. Riding the positive sentiment, BTC briefly surged to the $31,800 level, ETH surpassed $2,000, and XRP gained over 80% to reach $0.90.


However, the upper boundary of the consolidation channel for BTC is incredibly strong. The $31,200-$31,400 level served as significant support during the bull market in 2021 and the bear market in 2022. This time, BTC failed to break above it and experienced a sharp decline to around $30,000 on Friday evening. Speculations arose regarding the reason for the drop, but it was most likely a combination of several factors:

• Still ongoing regulatory and macroeconomic uncertainty
• XRP's win against the SEC, which after emotions cooled down, still leaves room for the SEC to appeal and continue the dispute
• Speculations about Binance's weak condition following information concerning layoffs of 1,500-3,000 employees compared to the total employment of around 8,000

The failure to break above the channel despite such significant news may suggest weakness in the bulls and an upcoming short-term downward trend. A key level to watch is the lower boundary of the channel around $29,700-$30,000. A daily close below this level could pave the way towards $27,500.

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Oil Loses 1.5% as China's Growth Disappoints


China's GDP growth came out below market expectations! Looking at expectations from the Bloomberg survey, only one economist expected that the country's growth could be at such a “low level”. Of course, looking at the dynamics, growth of 6.3% y/y does not seem weak, although more was expected (growth of 7.1% y/y). In the first quarter, growth was 4.5% y/y. It's worth remembering that in the second quarter of last year, China introduced very restrictive covid measures, including in the Shanghai region, which then severely limited economic growth. That is why the market expected that economy would grow much stronger.


In quarterly terms, growth came out at 0.8% q/q, in line with market expectations and the growth in the previous quarter was 2.2% q/q. Industrial production for June grew stronger than expected at 4.4% y/y and retail sales were slightly below expectations at 3.1% y/y. So where is the problem with the Chinese economy? In the real estate market and in the "strong" yuan. The yuan is not weak enough to boost subdued exports. On top of that, real estate market sentiment remains very weak. At the same time, it seems that GDP data is not weak enough to lead to a further cut in interest rates. PBOC will decide on interest rates on July 20 and despite weak data, there is no expectation that the bank will cut rates once again. Recently, the PBOC surprised negatively by cutting rates less than expected.


Oil is losing nearly 1.5% today, mainly due to data from China, as the country is responsible for a very large share of expected demand growth this year. At the beginning of the year, imports were disappointing due to high inventories. Now that inventories are running out and China should import more oil. However, without a stronger stimulation of the economy, China's demand growth may fall short of expectations. At the same time, looking from the side of oil itself - a very cheap dollar may support the continuation of the rebound, although a "tactical correction" cannot be ruled out.





Brent oil is testing the area of $78.5 per barrel. If this level is broken, a test of the area around $77 per barrel cannot be ruled out. The size of the range of the previous downward wave also falls slightly lower. Seasonality indicates that further decline may be seen until the end of July. Nevertheless, for the moment, the uptrend remains unbroken.

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GBPUSD


UK economists at Goldman Sachs are predicting a 50 basis point increase in the Bank of England's interest rate during the August meeting, with a projected peak of 6% by November. The current interest rates are at 5.0%. The forecast for a further 100 basis point increase is based on continued strong inflationary pressure, wage growth, and a slower-than-expected response of outstanding mortgages to changes in interest rates.





Additionally, GBPUSD rates have been supported by speculation that the Federal Reserve (FED) may have to revise its hawkish policy due to lower-than-expected inflation readings. This shift in sentiment, combined with upcoming inflation and retail sales data in the UK, may lead to larger movements in the GBP/USD pair this week.

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