US Economic Data Supports Dollar, Yen Dips on Political Worries (08.16.2024)

On Friday, the Dollar Index remained steady around 103 on strong US economic data that eased recession fears, although it faced some pressure from soft inflation data. Meanwhile, the Japanese yen dropped to a two-week low past 149 per dollar, influenced by robust US data and political uncertainty in Japan. Gold held steady at around $2,450 per ounce, attracting safe-haven demand with Middle East tensions, though its momentum was moderated by shifting expectations for a Fed rate cut in September. In the UK, retail sales rebounded in July, rising by 0.5% month-over-month and 1.4% annually, driven by gains in non-food stores and non-store retail trade.

Dollar Index Holds Steady on Rate Cut Speculations

The dollar index traded around 103 on Friday, following a 0.5% gain in the previous session, supported by strong US economic data that eased recession fears. Retail sales in the US rose by 1% in July from the previous month, significantly outperforming market forecasts of 0.3%, reflecting robust consumer spending. Additionally, new unemployment claims fell unexpectedly for a second consecutive week, easing concerns about the labor market. However, the dollar faced some pressure from soft US inflation data for July. Markets are expecting that the Federal Reserve will begin cutting interest rates in September, though there is still uncertainty over whether the reduction will be 25 or 50 basis points.

In the pair, the first support level is at 1.0950. If this level is breached, the next supports to watch will be 1.0900 and 1.0850. On the upside, the first resistance is at 1.1015; if this level is surpassed, the next targets will be 1.1065 and 1.1100.

Yen Sinks to Two-Week Low with Stronger Dollar

The Japanese yen fell past 149 per dollar, reaching a two-week low as the dollar strengthened following US economic data that exceeded expectations. This shift alleviated recession concerns in the world's largest economy. Political uncertainty in Japan also contributed to the yen's depreciation, with reports indicating that Prime Minister Fumio Kishida will not seek reelection as party leader in September, effectively ending his tenure as prime minister. Meanwhile, recent data revealed that Japan's economy grew by 0.8% quarter-over-quarter in Q2, reversing a 0.6% contraction in Q1 and surpassing expectations of 0.5%. On an annual basis, the economy expanded by 3.1% in Q2, recovering from a 2.3% decline in Q1 and exceeding forecasts of 2.1%. On the monetary policy front, traders are closely monitoring for indications of the timing of the next Bank of Japan interest rate hike as the central bank navigates increased market volatility.

The first resistance level is at 149.40. If this level is surpassed, the next targets will be 151.50 and 152.00. On the downside, the initial support is at 147.90; if this level is breached, the next support levels to watch will be 146.20 and 144.00.

Gold Holds Steady Around $2,450

Gold remained steady around $2,450 per ounce on Friday, poised to record a weekly gain following a decline the previous week. The metal continues to attract investors as a safe-haven asset amid escalating tensions in the Middle East, particularly regarding concerns about a potential Iranian retaliatory strike against Israel. Meanwhile, recent US economic data has tempered expectations for a more aggressive Federal Reserve stance on its anticipated September rate cut. July retail sales surged unexpectedly, signaling strong consumer spending, and initial claims fell to their lowest level in a month, alleviating concerns about a weakening labor market. As a result, investors are now predicting a 25 basis point rate cut by the Fed in September, shifting away from the previously expected 50 basis point reduction. This shift has moderated gold's momentum due to its sensitivity to interest-bearing assets.

The first support level for gold is at 2,450. If this level is breached, the next supports to watch will be 2,430 and 2,412. On the upside, the initial resistance is at 2,475; if this level is surpassed, the next targets will be 2,450 and 2,500.

UK Retail Sales Rebound in July with 0.5% Monthly Gain

UK retail sales increased by 0.5% monthly this July, following a downwardly revised 0.9% decline in June and meeting market expectations. Sales at non-food stores rose by 1.4%, with notable gains in department stores and sports equipment outlets, driven by summer promotions and sporting events. Additionally, non-store retail trade grew by 0.7%, largely due to a rebound in sales from stalls, markets, vending machines, and door-to-door services. Conversely, sales at food stores remained flat, and automotive fuel sales decreased by 1.9% after a 2.2% rise in the previous period. Over the three months leading up to July, retail trade increased by 1.1%. Retail sales surged by 1.4% yearly, recovering from a revised 0.3% decline in the previous period and aligning with market estimates.

For GBP/USD, the initial support lies at 1.2830, followed by 1.2790 and 1.2740 below. On the upside, the first resistance is at 1.2880, with subsequent levels at 1.2950 and 1.3000 if the pair breaks above this resistance.