Japan GDP Disappointment, AUD Takes A Dive, Powell’s Testimony

Today, in the early hours of the Asian morning, Japan released its GDP figures, which was not what the country was hoping for. Australia’s employment change number came out well below zero. UK’s retail sales are in the spotlight, together with eurozone’s preliminary GDP figures. Today, Jerome Powel delivers his testimony to the House Budget Committee.

Japanese GDP and Australia’s Employment

During the early hours of the Asian morning we received Japanese GDP figures for Q3 on a QoQ and YoY basis. Although the numbers were already believed to come out lower than the previous ones, the actual readings were even lower. The QoQ figure came out +0.1%, against expected +0.2% and the previous adjusted +0.4%. But the YoY number was even worse, going from the previous +1.8% adjusted to only +0.2%, when the forecast was at +0.8%. Nikkei 225 took a deep dive and closed today’s trading session with a 0.76% loss. But the Japanese currency strengthened, as it once again confirmed its status of safe-haven currency and something that traders jump into when negativity hits the market. There could be a chance for the yen to gain a bit more, especially if the equity markets start feeling the heat.

At the last BoJ meeting, policymakers decided to keep their ultra-loose policy steady, but in the accompanying statement, they altered their forward guidance to signal chances of a future rate cut more clearly. Instead of saying that the current extremely low levels of interest rates are likely to stay unchanged “at least through spring 2020”, they noted that short- and long-term interest rates are expected to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost. Combined with very low inflation rates, a slowdown in economic growth may increase the chances for this Bank to cut rates, but we stick to our guns that with little space to ease further, policymakers may decide wait for a while before acting, and perhaps rely on their signals to do the work for now.

Also, about an hour after that, Australia produced its employment numbers for the month of October. The expectation for the unemployment number was to come out 5.3%, which is one tenth of a percent higher than the previous reading. The actual reading came out the same as expected, at 5.3%, where the previous number was at 5.2%. This increase in unemployment was already anticipated by market participants, but what they could not have predicted was a much lower employment change figure. The previous reading was at 14.7k, but the expectation was for a slight gain, at 15.0k. The real number fell into negative zone and came out at -19.0k. Also, the participation rate fell by a tenth of a percent, from 66.1% to 66.0%. The Australian dollar took a strong hit against its major counterparts and it is currently the biggest loser among them.

Also, today we received the Q3 preliminary GDP figures from Germany, which were much better than the forecasts and the adjusted previous readings. The QoQ number showed up at +0.1%, when it was expected to come out -0.1%. The YoY number was also on the high side and came out at +1.0% versus the forecasted +0.9%. The data supported the common currency and helped it rebound slightly from its current lows this morning.

Britain will once again take the spotlight, but this time with its core and headline retail sales numbers for October on a MoM and YoY basis. All the forecasts are currently for better numbers than expected. The core MoM is believed to have gone up slightly from +0.2% to +0.3%, and the YoY one is expected to have risen from +3.0% to +3.5%. The headline YoY number is also forecasted to rise from +3.1% to +3.7%.

Jerome Powel’s Testimony To Joint Economic Committee

Later in the day, the US releases its MoM and YoY PPI figures for October. We will keep an eye on the MoM Producer Price Index, which is believed to have improved from the previous -0.3% to +0.3%. About half an hour after the US opening bell, the head of the Federal Reserve, Jerome Powell, is set to deliver his testimony on the state of the economy before Congress, this time in front of the House Budget Committee.

Yesterday, Jerome Powell delivered his testimony in front of the Joint Economic Committee. In his statement he talked about the overall economic outlook and the monetary policy. He highlighted that the US economy is in its 11th year of expansion and the whole outlook is still favourable. GDP increased at an annual pace of 1.9% in Q3. Household consumption continues to slowly move higher, as the job market is still at its comfortable levels. Low- and middle-income communities are able to find jobs in various new opportunities, which are available in the market. This resulted in an increased labour participation number, which continues to rise from May of this year.

Certainly, there were a few negatives in the speech. Inflation was one of those, which is below Fed’s target of 2%. Also, Jerome Powell raised his concerns in regards to the ongoing trade tensions between China and the US. This led the FOMC to adjust its interest rates accordingly. Since July this year, the Fed has lowered the target range by 75 bps, in order to offset the risks arising from trade tensions and lower global growth. These actions also helped to maintain inflation near the desired target.

AUD/NZD — Technical Outlook

After taking a strong hit yesterday, AUD/NZD continued drifting further down this morning as well. The pair found some decent support near the low of September 9th, at 1.0631, from which the rate could rebound slightly. But given the current weakness in AUD, the rebound may be short-lived and the selling might resume, hence why we will stay cautiously-bearish, at least for now.

As mentioned above, a small rebound could lift the rate back to the 1.0660 barrier, which is the lowest point of October. If the pair struggles to move and stay above it, this may result in another round of selling, possibly leading AUD/NZD to the 1.0631 obstacle, a break of which could open the door for a deeper slide. The next potential support area to consider might be the 1.0612 level, marked by the low of August 28th.

On the other hand, if the pair passes the previously-mentioned 1.0660 barrier and moves above the 1.0675 hurdle, marked by the low of October 24th, this may attract more buyers into the game. The rate could then accelerate higher, towards the 1.0707 obstacle, a break of which may test the 1.0746 area, marked by an inside swing low of November 4th.

GBP/JPY — Technical Outlook

Overall, GBP/JPY is still trading above its short-term tentative upside support line taken from the low of September 3rd. But, from around the end of October, the pair is struggling to get out of a range, which is roughly between the 139.36 and 140.75 levels. For now, we will remain neutral and wait for break through one of the sides of the range, before examining a further short-term directional move.

If, eventually, the lower side of the range, at 139.36, surrenders to the bears, this may clear the path to the next potential support zone, at 138.38, marked by an inside swing low of October 16th. Around there, the rate might test the 200 EMA on the 4-hour chart, which could provide some support. If GBP/JPY rebounds, but fails to move back above the 139.36 hurdle, this could invite the bears into the field again. This is when the pair might drift lower, break the 138.38 obstacle and aim for the 137.89 area, or even the 137.50 level, marked by the low of October 16th.

In order to get comfortable with the upside, a break of the upper bound of the range, at 140.75, is needed. We will then aim for the 141.50 hurdle, marked by the high of October 17th, a break of which could set the stage for further move north. This when we will target the 142.18 level, which is the high of May 14th.

As for the rest of today’s events

Half an hour after the UK data release, the eurozone will deliver its preliminary GDP numbers for Q3 on a QoQ and YoY basis. Both figures are believed to have stayed the same, at +0.2% and +1.1% respectively.

Today, Jerome Powel delivers his testimony to the House Budget Committee.

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Originally published at https://www.jfdbank.com on November 14, 2019.