USDJPY: The Rise of the Bears or just a Pullback?

Traders' Opinions

Summary:

It has been a one way ticket from the start of the year at 115 to 139 with no real pullback on the Fibonacci, at least 38.2 / 50 retracement level should be tested as the Bulls have started taking major profit.

Finally, the bears are awake as the dollar yen has dropped significantly. We knew it was only a matter of time before whatever it was on would start to wear off.

The monthly timeframe is now looking like a fake out of 135 Supply with the recent moves to end the month of July. An inside bar formation for August would be ideal as further confirmation of more shorts to come but we would have to wait patiently for the outcome.

USDJPY: The Rise of the Bears or just a Pullback?_1

A lot of bulls would definitely be trapped as most traders are majorly looking to buy. Is this just a retest of 131.25 on the weekly or start of a strong bearish pullback? Only time will tell but one thing the charts says is that this move is packing some heat from the Sellers based on the size of this week's candle.

Remember that 131.25 is an untested level of Support on W1 and fresh buy orders should be there but would it be enough against this recent move?

USDJPY: The Rise of the Bears or just a Pullback?_2

The bearish rising wedge on the daily played out accordingly and we await reaction at the 131.25 demand.

USDJPY: The Rise of the Bears or just a Pullback?_3

The best entry for shorts would have been at the 137.60 flip-zone, better seen on the 4hours timeframe. This could also be the start of a strong bearish move and a retest of 135.50 is ideal for possible re-entry.

USDJPY: The Rise of the Bears or just a Pullback?_4

Always let price come to you and don't go chasing it, times you don't rush to enter the market is when clean trades will present itself to you as a reward for patience.

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Owen Li

Australia should "rebrand" to entice workers from overseas to fill vacant jobs as quickly as possible, Business Council of Australia chief executive officer Jennifer Westacott says.

The business council has released a paper proposing several short-term fixes to help the economy weather the storm of high inflation, supply chain issues and a skilled worker shortfall approaching 500,000 jobs.

Its release follows Treasurer Jim Chalmers' sobering economic update to parliament on Thursday, in which he revealed inflation is expected to peak at a higher than expected 7.75 per cent by the end of the year.

Ms Westacott told the ABC more immediate relief could be found by fast-tracking visas, offering extensions to working holiday-makers and pathways to permanent residency for international students.

"If you can't get someone to pick your fruit, if you can't get someone to do the work, that just goes straight into shortages and prices," she said.

"We've got to actually rebrand Australia as a place where we want people to come and work."

Business Council of Australia Proposes 'Rebrand' to Help Nation's Economy_1

Ms Westacott said the prime minister's jobs and skills summit on September 1 would be a "big opportunity" to "reset around the big issues".

The summit will aim to bring employers, interest groups and unions together to find "common ground" on enterprise bargaining, migration and other issues in a bid to boost productivity and get wages moving.

"But in the meantime, what we're saying is we should pull every lever that's in our control, to get rid of friction and blockages in the economy," Ms Westacott said.

Ms Westacott said rising inflation would heighten the pain already being felt by businesses, even if they were in "better shape" than those in other countries.

She also suggested cutting red tape as an immediate priority.

Business Council of Australia Proposes 'Rebrand' to Help Nation's Economy_2

The chief executive of Victoria's peak business body is preparing his own pitch to the federal government on ways to boost the economy in the short term. Victorian Chamber of Commerce and Industry chief executive Paul Guerra has also called for visa extensions and improved pathways to jobs for international students.

"Second, (we should) accelerate the visa approvals (process). We know there's a backlog. Let's get that backlog cleared," he told 3AW radio.

"And importantly, maybe it's time temporarily to relax skill list requirements so we get people in the country who can work."

The updated Treasury forecasts released on Thursday also include weaker than expected economic growth and falling real wages.

Business Council of Australia Proposes 'Rebrand' to Help Nation's Economy_3

Treasury secretary Steven Kennedy has urged the government to begin repairing the budget as quickly as possible to contain debt and to bolster the coffers for other crises such as the Covid-19 pandemic.

"Clearly, we are now around full employment, and it is appropriate for fiscal consolidation to now occur and for monetary policy to normalise," Dr Kennedy said in a speech to The Australian National University on Wednesday night, which was published on Friday morning.

The Treasurer is yet to outline a detailed plan to repair the budget, but he has accused his predecessors of accumulating a "trillion dollars in debt, with nothing to show for it".

He will deliver his first budget on October 25.

Source: News.com.au

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Devin

Central Bank

Bond market puts central bank hikes on ice

Even accounting for a fair dose of confirmation bias, the rally in front-end rates this week is nothing short of spectacular. Once again, global rates markets are taking their cues from the U.S., where a more nuanced Fed tone was enough for bond yields to dive, and for curves to bull-steepen. Of course, a miss in U.S. 2Q GDP added to buying pressure at the front-end, but we think the underlying conviction that the looming recession will scupper central banks' efforts to tighten policy is to blame.

To be clear, we do agree with recession calls and have long argued that the number of hikes priced by the EUR and GBP swap curves were excessive. Throughout the bond sell-off, our economics team has called for no more than 100bp of hikes from the ECB in this cycle, compared to market pricing of more than 300bp at some point. This is to their credit. The market adjustment lower is probably closer to its end than to its beginning but we see more downside risks to rates on account of 1) risk aversion drawing more money into the relative safety of bonds, and 2) as the EUR curve still needs to price out roughly 50bp of hikes by the end of this year.

Bund yields eyeing 0.5%, Bank of England to hike 50bp and stop

Of course, this adjustment will be far from a smooth journey. The upside surprise to Germany's July CPI, as well as our forecast for persistently high inflation over the coming months, means some of the recent rally could well be reversed, in particular if eurozone core inflation released today accelerates as forecast. As a result, we think the size of the drop-in rates at the long end might be smaller, but the transition looks to be smoother. We wouldn't be surprised to see Bund yields test the 0.5% level by the end of this summer.

That policy dilemma is also one faced by the Bank of England. An upside surprise in inflation and a still robust job market tip the scales in favour of a 50bp hike at next week's meeting, but this may well be the last hike in this cycle. Our economics team summarised the factors affecting the Bank's decision in a handy article but, overall, they boil down the already high rates and looming recession risk cementing its expectations for lower inflation. Our forecasts have CPI returning below the 2% target as soon as the end of next year.

Today's events and market view

This already exciting week concludes with no less than eurozone 2Q GDP and July inflation. Bonds shrugged the upside surprise in German CPI yesterday, rallying into and after the release. Worse, the curve bull-steepened as it priced out more ECB hikes.

This is also the last weekday of the month which tends to be favourable to curve flatteners and for duration more generally.

June personal income and spending kick off today's list of U.S. releases, to be followed by the U.S. June PCE deflator. The core measure is expected to stabilise at 4.7% after the quarterly number, released as part of 2Q GDP yesterday, slowed down to 4.4%. The inflation expectations component of the University of Michigan will be closely watched. Even if this is a final read on it, the figure has been liable to revisions in the past. Chicago PMI is also expected to point downwards.

Source: ING

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Owen Li

Southeast Asian countries are tapping the international credit markets to raise funds to help put their economies on a low-carbon path as the threat of climate change becomes more urgent in the region.

Analysts say emissions reduction, and the need for financing to help achieve it, has become a pressing issue as extreme weather events such as typhoons, drought and intense heat wreak havoc on the region.

Cesar Carlito Baclagon, a regional finance campaigner at 350.org, an international environmental group, said shifting to a low-carbon economy will involve harnessing more renewable energy sources and redesigning buildings, housing and public transport systems. These projects would require huge funding because "you have to spend a lot of money to protect a planet that has a finite number of resources".

"Green bonds may come with tax incentives to enhance their attractiveness to investors. This, together with other financing products and instruments, can help provide the stimulus for the (low-carbon) transition," he said.

Singapore is expected to issue its maiden sovereign green bond later this year to finance the city-state's transition. The Philippines raised over 140 billion pesos ($2.51 billion) in two green bond offerings, in March and April.

Elsewhere in the region, Hanoi-based EVN Finance Joint Stock Company issued Vietnam's first onshore internationally verified green bond in local currency this month, with the issuance valued at $75 million. As for Thailand, it pioneered green bonds in the region, launching a sustainability bond worth 30 billion baht in August 2020, equivalent to nearly $951 million under the exchange rate at the time.

By issuing green bonds, which are designed to support specific climate-related or environmental projects, Southeast Asian economies can continue to grow despite the challenges brought by climate change, Baclagon said.

Commitments required

Climate finance will also require commitments from developed countries, he said, adding that the move away from fossil fuels must be supported by capital "especially from historic and (high) per capita emitters that brought us to the climate crisis".

Le Duy Binh, managing director of consultancy Economica Vietnam, said green, social and sustainability bonds have an "extremely important role" for Vietnam as they can help finance green transportation projects, enable the phaseout or phase-down of coal-fired power plants and support the development of renewable energy sources.

"The demand for capital to finance these green projects is huge and cannot be met only by banks and credit institutions which often offer short-or medium-term financing only," Binh said.

Angelo Kairos Dela Cruz, deputy executive director of the Institute for Climate and Sustainable Cities, a think tank in Manila, said issuing green bonds can be a catalyst to "build an economically sound, climate-inclusive financing strategy". But he added that green bonds are not a silver bullet that can solve all problems related to climate financing.

He stressed it is important to avoid "greenwashing"－making exaggerated or imprecise claims in regard to environmental practices or benefits.

Dela Cruz said that for any financial instrument "that claims to use the not-business-as-usual approach, accountability would always be central to the discussion". He said that there should be an independent body that monitors how the funds are used and the impact on local communities.

Baclagon said greenwashing also can be avoided if there are strict criteria for the funding as well as safeguards for the environmental and social impact of these projects under the investment policies of banks and other financing institutions.

As one of the regions that are most vulnerable to climate change, Southeast Asia could see its economy take a big hit if the global temperature rise exceeds 1.5 C.Reinsurance firm Swiss Re has estimated that under a "most-severe scenario", with a temperature rise of 3.2 C, the region would lose about 37 percent of its GDP by 2048.

The region needs $2 trillion worth of investments over the next decade to shift to a low-carbon economy, according to a joint report by Bain, Microsoft Asia-Pacific and Temasek. But less than $9 billion of capital has been deployed for green assets in 2020, the report said.

Source: China Daily

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Damon

The past week has been notable for a global resurgence in risk appetite despite a run of data pointing to deteriorating U.S. economic growth. Principally this is because the softer tone of U.S. data and the FOMC's recognition of it implies a receding risk of rate hikes in excess of those already priced.

Having delivered a second-consecutive 75bp fed funds rate hike to a mid-point of 2.375%, Chair Powell showed a greater degree of comfort over the outlook for inflation in the July press conference. In part this stems from 2.375% being within the 2-3% interest rate range the FOMC believe to be neutral for their economy. However, the greater comfort vis a vis inflation is also a consequence of building apprehension over the outlook for growth. Notably, the press conference also made clear that the FOMC wish to undertake "just the right amount of tightening" to bring about below-trend growth, "not make a mistake" by creating the pre-conditions for recession – as defined by the NBER.

After the July FOMC meeting, Q2 was confirmed as a second consecutive quarter of contraction for GDP, giving further weight to the nascent concerns of Chair Powell and the Committee. Importantly, whereas the weakness in Q1 was principally due to net exports and inventories, in Q2 a marked deterioration in domestic final demand was seen – annualised growth falling from +2.1% in Q1 to -0.1% in Q2. Pricing for the FOMC fell further as a result to now be broadly in line with our own view – a 50bp hike in September followed by only two 25bp hikes come November and December.

Arguably risks to this view are also transitioning from being biased up to skewed down. The most likely catalyst to cement such a change is the weakness recently seen in household survey employment – flat over the three months to June – becoming apparent in nonfarm payrolls and hourly earnings. Along with persistent weakness in domestic demand, a material weakening in these labour market variables would begin to fit the definition of an NBER recession and warrant greater caution be taken with policy. August 5 and September 2, the next two release dates for the U.S. employment report, therefore loom as critical dates in the run to the September FOMC meeting.

Regardless of how the U.S. rate hike cycle concludes in 2022, come 2023 we believe the policy debate will shift to the timing and scale of rate cuts as U.S. economic growth languishes below trend and inflation pressures recede. We are more cautious on the timing of policy easing than the market, holding that it won't begin until late-2023; however, we expect the easing to be material in scale, in the order of 125bps by end-2024.

Australian equities and our dollar have benefitted from this week's recalibration of U.S. economic risks. This is despite domestic data releases which pointed to a modest softening in consumer demand in May/June and a sharp decline in real household disposable income through Q2.

Australia's retail sales posted a soft gain of 0.2% in June, rounding out a 3.2% lift for Q2 after a similarly strong 2.9% increase in Q1. The COVID-19 reopening and normalisation of spending patterns is a key factor here, although strong price inflation over this year has also supported nominal sales. Solid momentum should sustain in the near-term, but come late-2022 and into 2023, the RBA's aggressive tightening cycle is expected to see an abrupt slowing in household spending. For full detail on the Australian consumer, see the latest edition of Westpac's Red Book.

The Q2 CPI report also made clear that household incomes have been, and will continue to be, hit by historic inflation, headline and trimmed mean inflation coming in as expected at 1.8% and 1.5%. At 6.1%yr and 4.9%yr, annual inflation to June is a multiple of aggregate wage growth across the economy, the latest estimate for the wage price index being 2.4%yr at March. The largest contributor to the headline CPI result was housing costs (0.6ppts), driven higher by a lack of supply of inputs and labour and, at the margin, the unwinding of the benefit provided to households by the Government's HomeBuilder grants in recent years.

Supply also impacted the cost of transport, household contents, apparel and food in the quarter and over the year; although for fresh food, the primary catalyst was east coast flooding rather than global supply chain and geopolitical concerns. Ahead, we continue to expect the pressure on households from inflation to persist, with annual headline inflation forecast to trend higher through H2 2022 to a peak around 7%yr in December and thereafter to take all of 2023 to come back near the top of the RBA's target range.

Chief Economist Bill Evans discussed the implications of Australian inflation for the RBA outlook and the economy following the Q2 CPI release. In short, inflation's Q2 result and outlook support our view that the RBA will need to raise the cash rate to 3.35% by February, with 100bps of the 200bps of cumulative hikes to come in August and September. To the extent that this level of the cash rate is materially above our estimate of neutral, the cost to the economy of bringing inflation back to target will be material, with GDP growth to slow in 2023 to just 1.0%yr and the unemployment rate rising to around 5.0% late-2024, approximately 2ppts above the low we forecast for late-2022.

Source: Westpac Banking

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Devin

As we come to the end of what looks set to be a positive month for equity markets, the economic data over the past few weeks has continued to point to a sharp deterioration in economic activity as high inflation bites ever harder.

Yesterday we found out that the US economy slipped into a technical recession, contracting by -0.9%, during Q2, prompting a discussion as to whether it should be described in such a way given the resilience of the labour market. Putting semantics to one side it is abundantly clear that irrespective of what the data is showing us, in relative terms we are all feeling the effects in our pockets of the global events that are pinching down on consumer incomes.

With that in mind markets have started to price out the prospect of more aggressive action by central banks when it comes to raising rates, pushing yields lower and giving a boost to equity markets. In that context we can expect to see a higher European open, as German 2-year yields hit two-month lows. Well received numbers from Amazon and Apple after the bell last night have also helped boost sentiment.

Today's smorgasbord of economic data, from the UK, EU and the US is set to confirm what we already know and are experiencing in our everyday lives.

Starting with Europe we have Q2 GDP from France, Germany, Italy and the EU and all of it is set to point to a weak quarter of economic activity. On the broad EU basis Q2 GDP is expected to slow to 0.2% from 0.6% in Q1. In Germany we will be lucky to see any expansion at all and given the current geopolitical and economic backdrop this could be as good as it gets for a while.

We also get a quick snapshot of flash CPI for July after the numbers from Germany jumped higher to 8.5% in numbers released yesterday.

This presents an enormous challenge for the ECB having seen the central bank raise rates for the first time since 2011 last week. The 50bps rate rise is unlikely to have a marked effect on how quickly or slowly inflationary pressures will continue to rise across the region. We've already seen further sharp rises in European gas prices this week due to reduced gas flows through Nord Stream 1.

With inflation as high as 20% in some parts of the euro area, whether the bank headline rate is at -0.5% or at zero is neither here nor there. Having seen June CPI confirmed at 8.6% only last week, the persistently high readings we've been seeing in respect of PPI, which is at over 30% in several parts of the EU, means we probably haven't seen the peak yet, and we can expect this to move closer to 9%, later this morning.

Higher interest rates are also impacting economic activity in the UK, mortgage approvals have slowed markedly in the last few months, and are expected to slow again in June, from 66.2k to 65k in what would be a two-year low. Net consumer credit for June is expected to remain steady at £1bn.

In the afternoon, and in the wake of this week's decision by the Federal Reserve to hike by another 75bps, and confirmation of the US economy slipping into recession yesterday we'll be getting the latest personal spending data for June, along with the most recent core PCE inflation data, given that it is the Fed's preferred measure of inflation targeting.

While headline CPI and PPI for June both saw unexpected increases in the headline numbers, it was notable that on the core numbers, both fell back. That's been the overall trend for core prices since February and March, however the rise in food and energy prices is starting to create ripple out effects that could call a halt to the recent declines from the current peaks we saw in March.

Core PCE deflator, peaked at 5.3% in February, and has declined every month since then, coming in at 4.7% in May, and is expected to remain steady at these levels in June..

What will the June numbers tell us? Are we nearing a peak, and even if we are, does the Fed even look at its preferred measure of inflation targeting?

For the moment it doesn't appear that the Fed is that interested, in fact we can't even be sure what data the US central bank is targeting now they've dropped forward guidance. Is it jobs, is it CPI, or is it inflation expectations with the latest University of Michigan numbers out later this afternoon, and the 5-10 year inflation expectations, which dropped to a one year low of 2.8% earlier this month.

EUR/USD – Continues to struggle below the peaks of last week at the 1.0275 area. While below the risk remains for a move back towards parity, and the previous lows at 0.9950. A move below 0.9950, towards 0.9660.

GBP/USD – Still below the 50-day SMA, and down trend from the February highs at 1.2220 area. Support remains at the 1.1870 area, with the bias remaining towards the downside while below the 50-day SMA.

EUR/GBP – While below the 0.8400 area, momentum remains negative for a move towards the 0.8300 area. We also have resistance back up near the 0.8480 area.

USD/JPY – Slid sharply lower yesterday falling towards the 50-day MA. A break below the 50-day MA opens up further losses towards the 131.50 area. Having fallen below the lows this month the bias seems to have shifted with resistance now at 135.50.

FTSE 100 is expected to open 19 points higher at 7,364.

DAX is expected to open 75 points higher at 13,357.

CAC40 is expected to open 36 points higher at 6,375.

Source: CMC

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Winkelmann

While the White House and its political adversary's debate whether the U.S. economy is in a recession, there now have been two straight quarters of negative GDP amid rising inflation.

By some definitions, that combination is called stagflation, although U.S. unemployment is low, which is a bright spot amid the recent dour economic news.

According to investopedia.com, "stagflation is characterized by slow economic growth and relatively high unemployment … which is at the same time accompanied by rising prices (i.e., inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP)."

Stagflation was first recognized during the 1970s, when many developed economies sustained rapid inflation and high unemployment due to an oil shock, according to Investopedia.

On Thursday, a day after the Federal Reserve raised interest rates by three-quarters of a percentage point (0.75) to a range of 2.25-2.50 percent in an effort to slow growth and ease pricing pressures, the Commerce Department reported that GDP fell by 0.9 percent in the second quarter, after a 1.6 percent retraction in the first quarter.

"Call it a recession or stagflation or a slowdown or a transitory blip or even Ethel or Fred — however you name it, the U.S. economy described in Thursday's GDP report for the second quarter is struggling. That's distressing for the American families and businesses living through it, and a political liability for the Democrats presiding over it. No wonder they want to pretend it's not happening," The Wall Street Journal Editorial Board wrote Thursday.

"President Biden inherited a growing economy primed to roar back from the pandemic, and in barely a year and a half has dragged America back to the 1970s. The best word for what we have now is stagflation, the ugly combination of slow growth and rapidly rising prices," the Journal continued. "This is what the policy mix of trillions in federal spending, heavy regulation, the threat of higher taxes and easy money has wrought. Time to do the opposite."

Treasury Secretary Janet Yellen, who previously was chair of the Federal Reserve, offered a different take Thursday.

"Most economists and most Americans have a similar definition of recession — substantial job losses and mass layoffs, businesses shutting down, private-sector activity slowing considerably, family budgets under immense strain," she said at a news conference.

"In sum, a broad-based weakening of our economy. That is not what we're seeing right now when you look at the economy," she added. "Job creation is continuing; household finances remain strong. Consumers are spending, and businesses are growing."

U.S. President Joe Biden, in a statement on the GDP report, said, "Our job market remains historically strong, with unemployment at 3.6 percent and more than 1 million jobs created in the second quarter alone."

Consumer spending, accounting for roughly two-thirds of the American economy, slowed to a 1 percent annualized growth rate in the second quarter, from a 1.8 percent pace in the first, the GDP report showed.

The slowing growth was driven by a 4.4 percent drop in spending on goods, which had soared during the COVID-19 pandemic, and a closer look suggests that much of that was due to elevated inflation rather than higher borrowing costs.

Consumers spent nearly $6 billion more on food for consumption at home than in the first quarter but walked out of supermarkets with less of it. Adjusted for inflation, food consumption fell $33.5 billion, resulting in food having its largest drag on the economy in nearly 50 years.

Services spending rose 4.1 percent, as people relieved of pandemic restrictions spent money on travel and restaurants.

It's not clear how long that will last though, said Rubeela Farooqi of High Frequency Economics.

"The question really is ... what is the staying power of service spending? The Fed is really hiking into a slowdown ... (it's) in a tough spot," Farooqi said, positing that households will soon begin to exhaust their savings and take on more credit card debt.

"The economy is clearly losing momentum," wrote JP Morgan's Michael Feroli. "At least the Fed has something to show for its rate hikes."

Wall Street shrugged off the GDP report, as the Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500 each finished higher by 1 percent on Thursday,

The report reflected a slowing of inventory accumulation and a boost to growth from trade, both of which analysts said at least partially reflected pandemic-disrupted supply chains.

"(The inventories drag) tells you that corporations are very concerned and are pulling back on their spending. That's part of a recession atmosphere," said Peter Cardillo, chief market economist at Spartan Capital Securities.

However, former U.S. treasury secretary Lawrence Summers said on Twitter, "Growth is only negative because of inventory decumulation, which in part reflects strength," although he added that spending growth "will have to slow way down if inflation is to approach target levels".

Inflation as measured by the core personal consumption expenditures price index, compiled by the Commerce Department's Bureau of Economic Analysis — which the Fed follows closely because it excludes more volatile components like food and energy — fell to 4.4 percent in the second quarter from 5.2 percent in the first. That is still much higher than the Fed's 2 percent goal for inflation.

The consumer price index produced by the Labor Department's Bureau of Labor Statistics was up 9.1 percent in June year over year.