Daily Report: Dollar Mildly Lower after FOMC Minutes, BoE Watched

Dollar weakened mildly after the FOMC minutes released overnight. But it’s staying in familiar range so far as there was no decisive momentum for a breakout yet. The FOMC minutes for the June meeting was non-eventful with policymakers giving little guidance on the expected timing of any rate hike cycle. It was revealed in the minutes that the Fed would make a US$15B final reduction at its October meeting. Yet, the conclusion of the program has nothing to do with the timing of the first rate hike. The Fed reiterated that the policy rate would remain near zero for a “considerable time”. The general economic outlook of the Committee was more or less the same as that in March. Despite the downward revision to 2014 growth outlook, most members did that to reflect the weak GDP report in 1Q14. They mainly kept the remainder of their forward-looking estimates unchanged. More in Fed To End Tapering In October, No Hints On First Rate Hike.

BoE rate decision will be a main focus today. While it is widely anticipated that the BOE would leave the Bank rate unchanged at 0.5% in July, the economic backdrop has become more encouraging for a rate hike. Strong PMI in June signaled that GDP growth in 2Q14 might have reached +1%, up from +0.8% in the prior quarter. Meanwhile, the employment market has remained upbeat with the headline ILO-harmonized unemployment rate falling to 6.6% in the 3 months through April from 6.8% previously. The Claimant unemployment rate also dropped to 3.2% in May, the lowest since October 2008. Yet, after going through the stubbornly-high inflation period, UK’s inflation outlook has remained benign in the near-term. Indeed, subdued producer price pressures, weakness in food prices, strong currency, and restrained earnings growth are expected to constrain inflation to below the BOE’s target this year and next. This has complicated the central bank monetary policy stance. While low inflation pressure has allowed policymakers more rooms to not tightening immediately, stronger-than-expected economic recovery has raised expectations for rate hike. We expect the BOE to begin tightening before the end of the year. More in Benign Inflation Dragging The Feet Of BOE.

On the data front, Aussie was lifted briefly by employment data which showed 15.9 growth in June versus expectation of 12.0k. Unemployment rate, however, rose more than expected to 6.0%. New Zealand business NZ manufacturing index improved to 53.3 in June. Japan domestic FCPI rose 0.2% mom in June, tertiary industry index rose 0.9% mom in May, machine orders dropped -19.5% mom. UK RICS house price index dropped to 53 in June. Looking ahead, ECB will release monthly bulletin, UK will release trade balance, Canada will release new housing price index, US will release jobless claims.

Daily Pivots: (S1) 0.7941; (P) 0.7952; (R1) 0.7960; More

EUR/GBP’s consolidation from 0.7914 temporary low is still in progress and intraday bias remains neutral. Near term outlook stays bearish with 0.8033 resistance intact. Current fall is expected to continue and below 0.7914 would target 168.1% projection of 0.8584 to 0.8157 from 0.8399 at 0.7708 next, which is close to key long term support level of 0.7693. However, considering bullish convergence condition in 4 hours MACD, break of 0.8033 will indicate near term reversal and turn outlook bullish.

In the bigger picture, choppy decline from 0.8806 is viewed as part of the long term consolidation pattern from 0.9799 (2008 high). Such medium term fall should now target 0.7755 (2012 low) and below. We’ll look for reversal signal again as the cross approaches 0.7693 long term support level. On the upside, break of 0.8399 is needed to confirm medium term reversal. Otherwise, outlook will stay bearish.

EUR/GBP 4 Hours Chart

EUR/GBP Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:30
NZD
Business NZ Manufacturing Index Jun
53.3

52.7
52.6
23:01
GBP
RICS House Price Balance Jun
53%
55%
57%
56%
23:50
JPY
Domestic CGPI M/M Jun
0.20%
0.10%
0.30%

23:50
JPY
Tertiary Industry Index M/M May
0.90%
1.70%
-5.40%
-5.70%
23:50
JPY
Machine Orders M/M May
-19.50%
0.70%
-9.10%

1:30
AUD
Employment Change Jun
15.9K
12.0K
-4.8K

1:30
AUD
Unemployment Rate Jun
6.00%
5.90%
5.80%

5:00
JPY
Consumer Confidence Index Jun

40.3
39.3

8:00
EUR
ECB Monthly Bulletin

8:30
GBP
Visible Trade Balance (GBP) May

-9.0B
-8.9B

11:00
GBP
BoE Rate Decision

0.50%
0.50%

11:00
GBP
BoE Asset Purchase Target Jul

375B
375B

12:30
CAD
New Housing Price Index M/M May

0.20%
0.20%

12:30
USD
Initial Jobless Claims (JUL 5)

316K
315K

14:00
USD
Wholesale Inventories May

0.60%
1.10%

14:30
USD
Natural Gas Storage

100B

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