28.07.201709:26 Forex Analysis & Reviews: Swiss Franc as an Indicator of a Reversal to Strengthen the Dollar

EUR/USD, GBP/USD

According to dealers, investors yesterday started to close positions from a technical level - the August peak of 2015, at 1.17. For this reason, the British pound lost 55 points, despite the outstanding growth in retail sales. The CBI Realized Sales index rose to 22 in June against 12 in May while the forecast was a decrease to 10. Former economic adviser to the British government, Dave Ramsden, was appointed as the Bank of England's Deputy Governor for Markets and Banking and will become a member of the Monetary Policy Committee. It is believed that he is a "dove", which is a supporter of soft monetary policy, and this also weakens the pound. A decline in counter dollar currencies was also supported by good US indices. The volume of orders for durable goods in July has increased by 6.5% against a forecast of 3.5%. Base orders rose by 0.2% however, the forecast was at 0.4%. The US trade balance in June was at -63.9 billion dollars against a forecast of -65.0 billion. Wholesale inventories of companies in June increased by 0.6% against expectations of 0.3%. As a result of a slew of positive data, the Federal Reserve Bank of Atlanta raised its GDP forecast for the second quarter from 2.5% to 2.7%. Today, the first GDP estimate for the second quarter will be released and the consensus forecast is at 2.5%. Since the probability of the indicator appeared to be better than expected, it could provoke a new wave of closing purchases for the euro and the pound.

The desire of investors to take risks, which is to buy the euro against the background of positive US data, which we mentioned yesterday, is disappearing before our eyes. In the stock market, the situation remains favorable (although the S&P 500 dropped by 0.10%, but the Dow Jones gained 0.39%), and yields on bonds increased, however, currencies are already in a state of unrest. The main sign of the unfolding turn for the global strengthening of the dollar is seen in the inevitable five-day weakening of the Swiss franc, as it lost 250 points during this time. The Swiss Central Bank completely rejects intervention in the market, despite the fact that the head of the central bank, Thomas Jordan, mentioned the overvaluation of the franc. However, if the SNB interferes, it would do so strategically correct and at an appropriate time, and therefore it is a signal for any reasons for the strong movement of the franc.

In the current situation, the previous day's decline of 55 points seen in the euro and the pound cannot be considered as an active closing of positions. Thus, there is temptation to once again make a fuss.

As the main scenario, we take yesterday as the beginning of the reversal. Respectively, we await for the euro in a range of 1.1440/85 and the pound sterling in the range of 1.2810/30.

USD/JPY

Upbeat data was released in Japan today. The unemployment rate in June fell from 3.1% to 2.8%, while the forecast was a drop to 3.0%. This unemployment rate was last seen in the summer of 1994, and currently along with the aging population, it is certainly a great indicator. The rate of labour force participation increased from 60.8 to 61.0. Household expenditures in June rose by 1.5%, while the forecast was 0.1%; On an annualized basis, household expenditures increased by 2.3% y/y against the forecast of 0.6% y/y. The consumer price index remained at the same level of 0.4% y/y. The basic CPI also remained unchanged from the previous index of 0.4% y/y. Retail sales in June grew from 2.0% y/y to 2.1% y/y, but the forecast was at 2.3% y/y.

On Monday, industrial output will be released in the June assessment. After a decline of 3.6% in May, the expected 1.7% appears quite natural. Next week in the US, factory orders are expected to grow by 1.1% (in June) and unemployment from 4.4% to 4.3%. For the yen's growth (USD/JPY), everything is ready. The release of the U.S. GDP data today is currently awaited. We are looking forward to the growth of the pair towards 112.90.