EUR/USD, GBP/USD
The euro and the pound was in a conditional consolidation on Thursday after a decline in the euro by 120 points, the pound by 240 points over the previous week. Data in the eurozone came out mixed: industrial production in France fell by 1.1% in June against expectations of a smaller decline, to -0.9%. Italy's trade balance for July increased from 4.34 billion euros to 4.50 billion euros, against the expectation of a lesser increase to 3.87 billion. In the United Kingdom, industrial production increased by 0.5% (the forecast was 0.1%), but production in the construction sector contracted by 0.1%, while expectations for growth is at 1.4%, and the trade balance in the June estimate was revised downwards from -11.3 billion pounds to -12.7 billion. The forecast of UK GDP from NIESR for July was 0.2% against the 0.3% in June. This explains the yesterday's decline in the pound against the rise of the euro.
Since the opening of the US session, the dollar has reacted sharply to the worse-than-expected producer price indices for July. The basic PPI was -0.1% against the forecast of 0.2%, while the overall index decreased by 0.1% against the forecast of growth by 0.1%. Perhaps the euro could not have rise from the day's low by 70 points and by the end of the day by 15 points, if not for the stock market decline linked with the North Korean conflict - S&P500 lost 1.45%, Nasdaq -2.13%. Against this political background, investors are gradually beginning to doubt further tightening of monetary policy - expectations for the December rate hike have dropped to 44.4%. Yield on the bonds decreased (for five-year government bonds from 1.809% to 1.774%), and yesterday's auction for 30-year government bonds showed an increase in demand to 2.32 from 2.31 in past sales. But there was also a very positive moment - the deficit of the federal budget for July was $42.9 billion against the expectation of a deficit of $60.9 billion. This is the best July since the time of the mortgage crisis. During William Dudley's speech on the labor market yesterday, he did not touch the topic of monetary policy.
Today, consumer inflation in the US will be released. The forecast for the core CPI for July is 0.2% against the prior month's 0.1%. For the overall CPI it stood at 0.2% vs. 0.0% in June. Later in the evening, Federal Reserve Bank of Dallas President Robert Kaplan and President of the Federal Reserve Bank of Minneapolis Neel Kashkari will speak. Both can touch on the topic of the monetary policy of the Fed, since the topic of the first Fed official is directly related to economic conditions, while the second official will be speaking at a meeting of bankers.
In the eurozone, the final estimates of the German and French CPIs last month will be released, and they are unlikely to change (from 0.4% and -0.3%, respectively).
The euro is expected at 1.1640, while the pound sterling is seen at 1.2875.
USD/JPY
Amid the geopolitical tension on the Korean peninsula, the media completely lacks commentary on the decline of Japan's machinery data. The core engineering orders fell by 1.9% in June against expectations for growth of 3.7% and year-on-year it fell from 0.6% to -5.2% against the forecast of -1.0%, making this the largest decline in the last five months. Machinery orders are connected with the general capital expenditures of enterprises and this, by association, can severely cloud the entire economic picture in the medium term. In July, however, prices for corporate goods were able to show growth - by 0.3% on a monthly basis and from 2.1% to 2.6% year-on-year. Business activity in the services sector showed zero growth versus the expectation of 0.2%.
Today, it is a holiday in Japan. Perhaps yesterday's drop in the yen by 87 points is also connected with this circumstance: investors left the uncertainty in these three days ahead.
It is believed that the tension on the Korean peninsula will be resolved without conflict, and the main sign of this is the absence of provocations towards the DPRK on the part of the US itself.
On Monday, Japanese economic indicators have a good chance to be revised- a preliminary estimate of GDP for the 2nd quarter is published. The forecast is 0.6% versus 0.2% in the first quarter. In annual terms, the forecast is 2.5% against the earlier estimate of 1.0%. The forecast for capital expenditures for the 2nd quarter is 1.2% q/q (which is questionable a mentioned earlier), but consumer spending for the 2nd quarter is projected to grow by 0.5%, which is also questionable due to the decrease in salaries at the end of the quarter and peak spending figures for the last six months (after which, as a rule, there is a decline).
Thus, the situation is vague and in many respects, really, depends on how quickly the North Korean conflict is resolved. If by Sunday the situation will improve significantly, then wait for the USD/JPY turn up from 108.70. If not, the disappointment from the economic data will be shown and the price will decrease in the range of 108.05/25.
