FX Daily Strategy: Asia, Aug 14

We expect June retail sales to unchanged overall, the weakest since a matching January, with a 0.2% increase ex autos, which would reverse a 0.2% June decline. Ex auto and gasoline we expect a second straight 0.4% increase. Gasoline prices are likely to remain a significant negative in July if less so than in June, in a continued correction from positive contributions in March, and to a lesser extent April and May.

Consumer spending was impressively resilient in Q2 despite weakness in real disposable income. June’s 0.4% gain ex auto and gasoline was the slowest since a matching January, though some of the slowing was probably due to prices. We expect a similar gain in July, signaling only a modest loss of momentum.

DXY remains the critical driver on the last trading day. Middle East geopolitics will be dominating the next move for the greenback. Perhaps there will be a surpirse deal, yet the condition seems to be unacceptable by both the U.S. and Iran. Thus, it is hard to be as optimistic as certain market participants.

On the chart, prices extend cautious trade within the 99.50 - 100.00 range. Intraday studies are rising and daily readings are improving, suggesting room for a drift higher and test of congestion resistance at 100.00. But negative weekly charts should limit any break in renewed selling interest/consolidation beneath the 100.35 weekly low of 15 July. Following cautious/corrective trade, fresh losses are looked for. A later break below congestion support at 99.50 will add weight to sentiment and extend late-June losses towards the 99.20 Fibonacci retracement. A further close beneath here will open up the 98.60 retracement.

USD/JPY hass been consolidating post intervention losses and tilted upwards. It looks like USD is still having the upper hand but potential intervention will be capping gains. The next leg could be triggered by more leaks from the BoJ that they will be hiking in September.

Return to pressure the upside after pullback beneath 159.45 resistance gave way to rebound above the 158.50 support. Bullish prices action from the 155.22 low of last week suggest scope for further gains ahead. Above 159.45 resistance will open up room to the 160.00 figure then 160.50 congestion and March high. However, corrective gains are expected to give way to fresh selling pressure later. Would take break of support at the 158.50/158.00 area to return focus to the downside for retest of support at 157.00/156.65 area and lower.