Daily Report: Dollar Firm ahead of ADP, GDP and then FOMC

Dollar stays firm and maintains yesterday gain as markets are waiting for some important events today, including employment data, GDP and FOMC. The dollar index breached 81.20 overnight and is hovering around that level for the moment. So far this week, Kiwi and Loonie are the weakest currencies followed by yen. Meanwhile, performance of Euro isn’t that bad as it’s the second strongest currency, as it’s consolidating elsewhere. In other markets, US equities extended recent consolidations with DOW down -70.48 pts to close at 16912.11, losing 17000 handle again. That was accompanied by decline in 30 year yield which closed at 3.222, extending recent down trend. 10 year yield was stuck in range. Asian stocks, on the other hand, are generally higher with MSCI Asia Pacific Index extending six year high.

The Q2 GDP in US is expected to show 3.1% annualized growth, rebounded from Q1’s -2.9% contraction. That means, There could indeed be slight expansion in the first half. A key to note is performance in household consumptions, which accounts for around two-thirds of the economy. Note that the government would also release revised reading of the past 3 years. That is, the first quarter contraction might be revised. That would trigger change in the projection for the growth of whole of 2014. GDP price index is expected to rise 1.8% comparing to Q1’s 1.3%.

US will also release ADP employment report, which is expected to show 241k growth in private sector jobs in July. That compares to June’s 281k. Over the past five months, the ADP has exceeded the government’s private payroll estimate by 27k. Markets are expecting Friday’s July NFP report to show 230k growth in the same month, with around 25k contraction in government jobs. The strong consumer confidence figure released overnight already raised some hope that unemployment could giver a pleasant surprise when economists expected it to be unchanged at 6.1%.

FOMC announcement will be the main focus today too. Fed is expected to taper the asset by another USD 10b, leaving the program at USD 25b per month. As usual, the reduction should be split evenly between treasuries and MBS. Overall, Fed is on track to end the QE3 by the end of October. FOMC should maintain the forward guidance that rates will stay low for a period of time. But the focus is on whether FOMC members are convinced that the economy is already in sustainable recovery. Also, Fed’s view on whether inflation is still expected to run below the target would be watched.

Elsewhere, New Zealand building permits rose 3.5% mom in June, Japan industrial production dropped -3.3% mom in June. Swiss will release UBS consumption indicator and KOF leading indicator. Eurozone will release confidence indicators and German CPI. Canada will release IPPI and RMPI.

Daily Pivots: (S1) 1.0809; (P) 1.0837; (R1) 1.0878; More

USD/CAD’s rally extends to as high as 1.0865 so far and intraday bias remains on the upside. As noted before, that correction from 1.1278 has completed at 1.0620 already, just ahead of 1.0608 key cluster support and long term trend line. Rise from 1.0620 should extend to 1.0960 resistance next. Sustained break there will pave the way for retest of 1.1278 high. on the downside, below 1.0795 minor support will turn bias neutral and bring consolidations. But downside should be contained above 1.0708 support and bring another rise.

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
22:45
NZD
Building Permits M/M Jun
3.50%

-4.60%
-4.40%
23:50
JPY
Industrial Production M/M Jun P
-3.30%
-1.00%
0.70%

6:00
CHF
UBS Consumption Indicator Jun

1.77

7:00
CHF
KOF Leading Indicator Jul

101.1
100.4

9:00
EUR
Eurozone Economic Confidence Jul

102

9:00
EUR
Eurozone Industrial Confidence Jul

-4.5
-4.3

9:00
EUR
Eurozone Consumer Confidence Jul F

-8.4
-7.5

9:00
EUR
Eurozone Services Confidence Jul

4.5
4.2

9:00
EUR
Eurozone Business Climate Indicator Jul

0.22

12:00
EUR
German CPI M/M Jul P

0.20%
0.30%

12:00
EUR
German CPI Y/Y Jul P

0.80%
1.00%

12:15
USD
ADP Employment Change Jul

241K
281K

12:30
USD
GDP (Annualized) Q2 A

3.10%
-2.90%

12:30
USD
GDP Price Index Q2 A

1.80%
1.30%

12:30
CAD
Industrial Product Price M/M Jun

0.30%
-0.50%

12:30
CAD
Raw Materials Price Index M/M Jun

0.60%
-0.40%

14:30
USD
Crude Oil Inventories

-4.0M

18:00
USD
FOMC Rate Decision

0.25%
0.25%

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