Daily Report: Dollar Mildly Lower as Fed Dudley Warned of Strength

The greenback weakened mildly overnight as a Fed dove warned of the strengthen of the currency. New York Fed president William Dudley said that a strong dollar would mean “poorer trade performance, less exports, more imports”. And, appreciation of the dollar would “tend to dampen inflation” and make it harder to achieve Fed’s mandate. Separately, Minneapolis Fed president Narayana Kocherlakota urged Fed to “sharpen” the statement of its objective. In particular, he noted Fed should be clear on inflation, which is undesirable to be too high and too low. Meanwhile, it’s reported that two Fed hawks, Philadelphia Fed president Charles Plosser and Dallas Fed president Richard Fisher will retire next year after completing the terms on FOMC. Overall, dollar is staying in tight range against European majors and yen and maintain near term bullish outlook.

In Eurozone, ECB president Mario Draghi said the central bank is moving to a more “active and controlled management of our balance sheet.” He noted that while outright purchases of ABS and covered bonds would increase the size of the balance sheet but “additional risk exposure will be limited”. Regarding the economy, he added “the risks surrounding the expected expansion are clearly on the downside.” Also he said that the ECB stands ready to use additional unconventional instruments, or alter the size and composition of the current policies when necessary.

Released from China, the flash HSBC PMI manufacturing rose to 50.5 in September, beating expectation of a fall to 50.0. HSBC noted that the activities showed “signs of stabilization” in September and the data point to “modest expansion” in China’s manufacturing sector. Nonetheless, the downturn in property markets remains the biggest downside risk to growth.

Looking ahead, Eurozone PMIs will be the main focus in European session. UK BBA mortgage approvals and public sector new borrowing will be featured. Canada will release retail sales and US will release house price index.

Daily Pivots: (S1) 1.0964; (P) 1.1003; (R1) 1.1081; More

The break of 1.1023 minor resistance suggested that pull back from 1.1098 is already completed at 1.0886 already. Intraday bias is mildly on the upside for retesting 1.1098 first. Break will resume whole rally from 1.0620 and will target a test on 1.1278 key resistance. The consolidation from 1.1098 could extend further and in case of another fall, downside should be contained by 1.0810 cluster support (61.8% retracement of 1.0620 to 1.1098 at 1.0803.

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
1:45
CNY
HSBC PMI Manufacturing Sep P
50.5
50
50.2

7:30
EUR
German PMI Manufacturing Sep P

51.2
51.4

7:30
EUR
German PMI Services Sep P

54.6
54.9

8:00
EUR
Eurozone PMI Manufacturing Sep P

50.6
50.7

8:00
EUR
Eurozone PMI Services Sep P

53
53.1

8:30
GBP
BBA Mortgage Approvals Aug

42.9K
42.8K

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

10.5B
-1.1B

12:30
CAD
Retail Sales M/M Jul

0.50%
1.10%

12:30
CAD
Retail Sales Less Autos M/M Jul

0.00%
1.50%

13:00
USD
House Price Index M/M Jul

0.50%
0.40%

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