Daily Report: Dollar Extended Rally on Hawkish Fed Minutes

Dollar surged broadly as Fed delivered more hawkish than expected FOMC minutes overnight. The FOMC minutes for the July meeting unveiled that policymakers had detailed discussion of the exit strategy. The Fed has also planned to officially update their exit principles later this year. We expect to see the update in September. On the economic outlook, the member acknowledged the improvement in the job market. Yet, they remained divided over whether the unemployment rate served as an accurate indicator of the labor market conditions. The staff revised potential growth lower and inflation higher while expecting inflation to stay below the Fed’s mandate for several years. The staff also lowered the unemployment rate forecast in response to the faster decline in the unemployment rate. More in FOMC Minutes Appeared Hawkish As Members Discussed Exit Principles In Details.

Commodity currencies, including Aussie, Kiwi and Canadian, are additionally pressured in Asian session after manufacturing data from China. The preliminary HSBC PMI manufacturing dropped to 50.3 in August versus expectation from 51.5, down from prior month’s 51.7. HSBC noted that while the economic recovery in China is “still continuing”, “its momentum has slowed again”. And it noted that “more policy support is needed to help consolidate the recovery”.

Elsewhere, Australia conference board leading indicator rose 0.4% in June, Japan manufacturing PMI improved to 52.4 in August. PMI data will be a major focus in European session today as France, Germany and Eurozone will release both PMI manufacturing and services. Swiss will release trade balance. UK will release retail sales and public sector borrowing. US will release jobless claims, leading indicators, Philly Fed survey and existing home sales.

Daily Pivots: (S1) 1.0941; (P) 1.0957; (R1) 1.0983; More

USD/CAD rises to as high as 1.0986 so far today and the breach of 1.0985 suggests that rally from 1.0620 is resuming. Intraday bias is back on the upside for 61.8% retracement of 1.1278 to 1.0620 at 1.1027 Sustained break will pave the way for retesting 1.1278 resistance. On the downside, break of 1.0859 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
0:00
AUD
Conference Board Leading Index Jun
0.40%

0.20%

1:35
JPY
Japan Manufacturing PMI Aug P
52.4
51.7
50.5

1:45
CNY
HSBC Manufacturing PMI Aug P
50.3
51.5
51.7

6:00
CHF
Trade Balance (CHF) Jul

1.91B
1.38B

7:00
EUR
France Manufacturing PMI Aug P

47.9
47.8

7:00
EUR
France Services PMI Aug P

50.3
50.4

7:30
EUR
Germany Manufacturing PMI Aug P

51.8
52.4

7:30
EUR
Germany Services PMI Aug P

55.5
56.7

8:00
EUR
Eurozone Manufacturing PMI Aug P

51.4
51.8

8:00
EUR
Eurozone Services PMI Aug P

53.6
54.2

8:30
GBP
Retail Sales M/M Jul

0.40%
0.10%

8:30
GBP
Public Sector Net Borrowing (GBP) Jul

10.1B
9.5B

12:30
USD
Initial Jobless Claims Aug 16

299K
311K

14:00
USD
Leading Indicators Jul

0.60%
0.30%

14:00
USD
Philly Fed Survey Aug

18
23.9

14:00
USD
Existing Home Sales Jul

5.01M
5.04M

14:00
EUR
Eurozone Consumer Confidence Aug A

-9
-8.4

14:30
USD
Natural Gas Storage

78B

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