Dollar stays firm against Euro and Swiss Franc following yesterday’s rally, but it’s paring some gains against the yen in Asian session. Risk appetite pushed DOW to new record close of 17138.2, up 77.52 pts, but Asian indices didn’t follow and are mildly lower at the time of writing. Fed chair Yellen hinted to the House Financial Services Committee that Fed is on track to start hiking interest rates in late 2015. And, Fed policymakers projected the federal fund rate to reach 1.00% by the end of next year. Nonetheless, she also emphasized “it would be a grave mistake for Fed to commit to conduct monetary policy according to a mathematical rule”. And, “it is utterly necessary for us to provide more monetary-policy accommodation than those simple rules would have suggested.”
Fed’s Beige Book economic period showed that all 12 districts reported expanding economic activity during the period from mid-May through June. All districts reported growth in consumer spending and manufacturing. In particular, manufacturing was robust in Midwest and West districts. Banking an financial services improved slightly but non-financial services had steady or improving growth. Residential real estate was mixed, nonetheless, while commercial construction generally strengthened. Labor market continued to improve with all districts reporting slight to moderate employment growth. Wage pressure were modest in most districts.
Canadian dollar dipped initially after BoC rate decision yesterday but quickly recovered. The BOC left the policy rate unchanged at 1% in July and maintained a neutral tone on the monetary policy outlook. Despite the recent pickup in inflation, the central bank attributed it to temporary factors such as ‘higher energy prices, exchange rate pass-through and other sector specific shocks’. That said, they removed the reference that there remained ‘downside risks’ on inflation. Policymakers were concerned about the economic growth, seeing ‘substantial slack’ in the economy and expecting a delay in closing of the output gap than previously anticipated. At the Monetary Policy Review (MPR) released, the BOC revised higher inflation outlook for this year but lower for 2015. GDP growth was revised lower for this year. More in BOC More Dovish Than Expected, Warned Of Sluggish Growth.
ECB governing council member Nowotny said yesterday he’s unsure whether ABS purchases “would fly”. He believed the “new normal” situation would stay with Eurozone for quite some time. And that included low economic growth, low inflation, lower bank profitability, lower asset quality and less short term funding. Executive board member Praet said ECB’s stimulus measures has succeeded in cutting Euro’s “strong appreciating momentum” but the central bank will continue to monitory the developments closely. Earlier this week, ECB president Draghi told the newly formed European parliament that quantitative easing “falls squarely” in the central bank’s mandate.
On the data front, Australia conference board leading indicator rose 0.2% in May and NAB business confidence dropped to 6 in Q2. Eurozone will release CPI final in European session. US will release jobless claims, housing starts and building permits, as well as Philly Fed survey.
Daily Pivots: (S1) 1.0712; (P) 1.0753; (R1) 1.0783; More…
USD/CAD lost some momentum ahead of 1.0813 resistance and retreated. But with 1.0693 support intact, further rise is still expected. Recent development suggests that the corrective all from 1.1278 could have completed just ahead of 1.0608 cluster support and the medium term trend line. Break of 1.0813 resistance, which is close to 55 days EMA now, would confirm this bullish case and target 1.0960 resistance and above. Though, below 1.0693 will dampen this bullish view and turn focus back to 1.0608 instead.
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.
Conference Board Leading Index May
NAB Business Confidence Q2
Eurozone CPI M/M Jun
Eurozone CPI Y/Y Jun F
Eurozone CPI – Core Y/Y Jun F
International Securities Transactions (CAD) May
Initial Jobless Claims (JUL 12)
Building Permits Jun
Housing Starts Jun
Philly Fed Survey Jul
Natural Gas Storage