CHFJPY
Traders took the Swiss franc higher against the Japanese yen as it seems that further rate hikes may be needed to quell inflationary pressures in the economy. According to the morning line, consumer and import price data rose 0.2 percent on the month. Bringing the annualized figure higher by 2.9 percent, speculation is emerging that a 50 basis point rate hike may in the works as SNB Chairman Roth contemplates further tightening. Given the most recent data, justification for heightened aggressiveness is definitely there. With retail sales figures stable and improved trade balances, the economy is likely continue experiencing price increases even if the months figure was supported by higher crude oil prices. Currently, markets are pricing in a likelihood that the central bank will raise by 25 basis points at the next meeting.
Comparatively, yen weakness on the day was attributed to the continual belief that Bank of Japan policy officials will be slower than expected in raising interest rates as we head toward year end. Although deflationary pressures have abated for the most part, rate hikes this time may be unwarranted as retail sales data continue to point to consumer weakness. As a result, further rate hikes this soon in the second half may dampen consumer interest and adversely affect overall growth in the worlds second largest economy. Remaining a carry trade favorite, the currency will now likely be lifted as soon as hawkish statements are abound out of the BOJ or economic data jumps higher.
GBPJPY
Carry trade notions were reignited on the session, taking the GBPJPY cross higher in the New York open. Surprisingly, the move was counter to earlier releases of the Rightmove housing price report. Expected to show a sustained climb in the sector, the report actually dipped lower for the month, to the lowest level in two years. Attributed to the decline seemed to be an adverse reaction to higher rates following the surprise 25 basis point hike by the Bank of England earlier this month. With higher rates, it becomes costlier for homeowners as payments are now higher. First time buyers may also be deterred as the cost of money increases. Nonetheless, market participants saw opportunity in the pound as the carry continues to exist between the two currencies. Currently the differential spread is equal to 450 basis points.
Lending to the slower than usual bias for the Bank of Japan, convenience store sales were considerably slower than expected in the worlds second largest economy. With slower convenience store sales, a measure of consumer demand, growth may very well be restricted even as deflationary pressures have abated from their seven year reign. Now, traders will be looking for sustained economic figures, especially to follow up on last weeks department store sales. Both machine tool orders and merchandise trade balance surveys will likely give a boost to the underlying currency, preceding any move higher on a rising consumer price index report.
Overbought on the session, the light volume looks to purport a slight take back as profit taking is inevitably leading into the Asian session. As a result, stopping at the topside trendline test at 219.75, the pair looks to retest a floor at 218.78, but not before taking out the 219.15 4-hour low on the 240-minute chart. Should 218.78 fail, moves to the 217.65 (38.2 percent fib from the 14 day move) figure are inevitable. Upside gains are looking capped at the 220.00 handle test with an upside break of 220.50 a green light for bulls.
GBPUSD
Sterling rounds out the top three market movers on the day following continued notions of a monetary tightening halt in the worlds largest economy, the US. Economic fundamentals have dipped slightly, and look to likely continue in this weeks durable goods order report for the month. Although expected to continue positive core results, the report is estimated to have pulled back some on lighter summer demand. This lower printing is likely to spur further bearishness on the US monetary tightening policy, likely exacerbating a directional bias on thin summer volume. Incidentally, rumors of larger institutional speculators hunting for stops worsened the sessions move, underpinning a 0.7 percent lift.
Running on the aforementioned notion, pound traders disregarded the Rightmove housing report and continue to speculate on at least one more rate hike at year end. A likely scenario, central bankers at this point will be looking for detrimental effects of the latest surprise rate hike announcement rather than economic fundamentals before making another rate adjustment. Subsequently, a watchful eye will also be placed on the unemployment rate as specified by the dissenting faction of the Bank of England. Should consumption remain underpinned, however, policy makers should have no qualms come year end.
The technical picture remains unchanged for the most part, with 1.8936 serving as the current level of support on the 1-minute shot. Testing the upside trend line at the 1.8950, a break below the current floor looks to purport a full blown move to the 1.8781 figure (38.6 percent fib from the monthly move). The 8781 level should provide for ample support with 1.8668 holding just fine for sterling bulls. Additionally on the 240-minute shot, upside test of the 1.9000 figure would be comparative given momentum keeps hold with a break above leaving 1.9100 handle vulnerable.
