USD/JPY continues to fall as the Japanese yen rally continues. In the European session, USD/JPY is trading at 133.26, down 0.72%. Yen rises on US GDP decline Thursday’s US GDP for Q1 was weaker than expected, as the -0.9% reading surprised the markets, which had projected a 0.5% gain. There was plenty of discussion about the soft GDP report, not so much that it underperformed, but rather over the question of whether the US was currently in a recession after two straight quarters of negative growth (GDP fell by 1.6% in the first quarter). Technically, a recession is widely defined as two consecutive quarters of negative growth. However, strategists in the Biden White House have been in emergency mode trying to spin the GDP release and avoid the “R” word at all costs. Optics are always crucial to politicians, and with mid-term elections in a few months, the Democrats don’t want to see the phrase “US in recession!” plastered in the media and are aruging that there are other methods of defining a recession, which of course, according to them, don’t apply to current economic conditions. However one chooses to define an economic recession, there’s no arguing that the US economy is closer to a recession after the GDP release, and that may lead to the Federal Reserve easing up on future rate hikes. The markets seem to think that is the case, even though runaway inflation hasn’t gone anywhere. Wall Street is sharply higher, risk appetite has returned and the US dollar finds itself in full retreat. In Japan, today’s data was mixed. Tokyo Core CPI for June rose to 2.3% YoY, up from 2.1% and above the estimate of 2.2%. Retail sales, however, fell sharply to 1.5% YoY in June, down from 3.7% and shy of the 2.8% estimate. Still, the yen has posted strong gains today as the dollar continues to struggle. USD/JPY technical USD/JPY continues to lose ground and is testing support at 133.53. Below, there is support at 131.50. There is resistance at 134.81, followed by 136.84.

The moving average gives mixed readings in the short term. The readings indicate a more bullish market while the longer term shows the opposite.  The momentum oscillator's relative strength index holds on to the natural zone, recording a 62 on the value line. Any uptick would support the bull market's continuous The British pound edged lower today in the initial European session after hitting the day's high, which coincided with the descending trendline at 1.2250. At press time, GBP/USD was trading at $1.2162, down -0.0016 or 0.13% on an intraday basis. The GBP/USD rose by approximately 500 pips from the year’s low that occurred on July 14. However, the cable has reached a level where the descending trendline acts as a guard, preventing the price from continuing its bullish trend. As a result, cable has retreated by around 100pips after hitting the descending trendline. This analysis relies on a four-hour time frame On the four-hour timeframe, the moving average reading shows mixed indications. The reading indicates the bullish continuation in the short-term support. The 50-MA crosses over above the 100-MA. Meanwhile, for a longer read of the 100-MA crossing below the 200-MA which does not support the bullish trend. However, the Relative Strength Index holds in the neutral zone, recording 62 on the value line. Any uptick would encourage the cable to encounter the descending trendline again.   The GBP/USD has been highly volatile on the previous two trading days, which makes a fake breach more likely to occur today. However, if the pound wants to continue its bullish trend, it should breach the first resistance level at  1.2164. A successful breach of the mentioned level would pave the way towards today’s high, which coincides with the descending trendline near the 1.2250 level. If the price could close the 4-hour candlestick above the descending trendline, this may bring the 1.2292 resistance level into the eyes of market participants, followed by the 1.2333 resistance level, which was last seen on June 28.  Alternatively, if the resistance level of 1.2164 could prevent the price from gathering more gains, that may push the price towards the support level of 1.2105. A successful breach of the previously mentioned level would allow the price to retest the 1.2040 support level. Crossing down below that level would bring the support level to 1.2001, followed by the support level of 1.1969. Note: That when a resistance level is broken, it becomes a support level since the price will trade above it, and vice versa. Alternatively, the market may perform a false breakout or rebound after breaking support, or vice versa. Additionally, the market could bounce from any level of support or decline after breaking any level of resistance.

EUR/USD Looking at EURUSD’s chart, we can see that in the past weeks, it is traded mainly between the range of 1.0270 and 1.0130 whereas currently, it is at the rate of around 1.021. After the last comment from FED, EURUSD became bullish so it should be expected to hold its rate above its support level of around 1.0160, with a high possibility to test its resistance level.

Americans increased spending (+1.1%) faster than income (+0.6%) in June. Both figures exceeded expectations, which is a bullish signal for the markets and the dollar as it shows buying is in good shape. But this may only be a good façade, which hides the difficulties. Last month Americans put away $944bn (on an annualised basis), which is the lowest in nominal terms since December 2016. The savings-to-income ratio fell to 5.1%, the weakest since August 2009. The ratio was sustainably below 5% during the final stages of the economic boom: in 2000-2001 and 2005-2008. Both episodes were harbingers of disaster for the stock market and took place during periods of rapid monetary policy tightening by the Fed. The fundamental reason for the weakness in equities during this period is the relatively high market valuation (P/E), as is the case now. Consumers cannot increase spending further, which harms corporate profits and forecasts and ends in staff cuts. Comments from the Fed or the Treasury, led by past Fed chief Yellen, make us look at the current picture, which is quickly becoming obsolete. Further, the economy may have no engine left for growth in the form of consumer spending while the housing market is already throttling.

Summary The Eurozone economy proved pleasantly—and surprisingly—resilient in Q2, with the initial estimate showing the region's GDP grew by 0.7% quarter-over-quarter. Not only was that firmer than the consensus forecast for a 0.2% gain, it was also a modest improvement from the 0.5% gain seen in Q1. The Eurozone July CPI was also released, and showed a further acceleration of inflation across the region. Headline CPI inflation quickened to 8.9% year-over-year, the fastest pace on record. The quickening in inflation was driven by higher food prices, and also reflected broader price gains, as the core CPI quickened to 4.0% and the services CPI quickened to 3.7% We view the Eurozone Q2 GDP figures as resilient enough, and July inflation figures as worrisome enough, to reinforce the case for another 50 bps Deposit Rate increase from the European Central Bank (ECB) in September, even with some concerns about the longer-term economic outlook for the region. View the full report

Summary United States: Busy Data Week Shows Wobbling U.S. Economy Data released this week showed that U.S. economic growth modestly contracted in Q2. New home sales were yet another data release that pointed toward a cooling housing market. The FOMC continued its fight against elevated inflation with its second consecutive 75 bps increase in the federal funds rate. Next week: ISM Manufacturing (Mon), Trade Balance (Tue), Employment (Fri) International: The Global Economic Outlook Dims Over the past several months, concerns about the global economic outlook have intensified, and predications of possible recessions around the world have become more widespread. As a result, we recently further downgraded our outlook and now expect global GDP growth of just 2.3% in 2022 and 1.6% in 2023. Next week: RBA Cash Rate (Tue), BCB Selic Rate (Wed), BoE Bank Rate (Thu) Interest Rate Watch: FOMC Hikes by 75 bps and Indicates More to Come Not only did the FOMC raise its target range for the federal funds rate by 75 bps, which was widely expected, but it signaled that more tightening is likely. That said, the FOMC acknowledged the recent slowdown in economic activity. Topic of the Week: Not Yet a Recession Way Down Inside Real GDP posted back-to-back declines in the first two quarters of 2022. While two consecutive quarters of negative GDP growth is one working definition of recession, it is not the official one. In a recent report, we unpacked the right variables to watch and introduced a new at-a-glance tool to get the next recession call right. View the full report