Daily Report: Dollar Rally Continues Against Yen and Commodity Currencies

Dollar extends its rally against commodity currencies and yen today. Meanwhile, the greenback continues to consolidate against European majors in tight range. Dollar is supported by speculation that Fed would start signaling that rate hike is coming after next week’s FOMC meeting. There was dissent among FOMC members on the language of forward guidance and both hawks and doves watched some form of re-write. In particular, markets will focus on whether Fed would drop “considerable time” from sentence of “maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends”. In that case, it would be a strong signal that Fed is really ready for interest rates normalization soon.

Technically, Euro stabilized from last week’s ECB triggered selloff while Sterling also took a breathe from the Scotland uncertainty selloff. Swiss Franc is steady supported by talk of negative rates adoption by SNB. But after all, outlook in these currencies remained negative against dollar. Selling focus has turned to commodity currencies and yen this week. Among them, Aussie is the weakest, followed by yen, and then Kiwi and Lonnie.

In Europe, ECB president Draghi urged governments to boost investments or, “we will weaken the economy in the short run and undermine its prospects in the long run.” He noted that even though ECB launched massive stimulus, “only if structural, fiscal and monetary policies go hand in hand will the euro area see investment return.” Regarding ECB’s policy, Draghi said the size of the purchase of ABS and covered bonds would have a “sizable impact on our balance sheet, which is expected to move towards the dimensions it used to have at the beginning of 2012.” Back then, the size was between EUR 2.7-3.0T, comparing to the current EUR 2T.

In UK, the latest “better Together” poll showed “No” to Scottish independence is having a small lead of 52% to “Yes” 48%. Lloyds Banking group said that it will move the headquarter from Edinburg to London in case of Scottish independence. Lloyds said in a statement that “while the scale of potential change is currently unclear, we have contingency plans in place which include the establishment of new principal legal entities in England.” Royal Bank of Scotland also said it will move its headquarter to England in that case. RBS said that “there are a number of material uncertainties arising from the Scottish referendum vote which could have a bearing on the bank’s credit ratings, and the fiscal, monetary, legal and regulatory landscape to which it is subject.”

On the data front, New Zealand business NZ manufacturing index rose to 56.5 in August. UK construction output, Eurozone industrial production and employment will be released in European session. But today’s main focus is on US retail sales, which is expected to show 0.4% growth in August, with ex-auto sales up 0.3%. US will also release import price index, U of Michigan sentiment and business inventories.

Daily Pivots: (S1) 0.9052; (P) 0.9134; (R1) 0.9181; More…

AUD/USD’s fall resumed after brief consolidations and reaches as low as 0.9053 so far today. Intraday bias is back on the downside. As noted before, the pair have completed a head and shoulder top pattern (ls: 0.9460, h: 0.9504, rs: 0.9401). Current fall from 0.9504 should target 61.8% retracement of 0.8659 to 0.9504 at 0.8982 and below. Based on current momentum, sustained break of 0.8982 will pave the way for retest of 0.8659 low. On the upside, break of 0.9236 support turned resistance is needed to confirm near term reversal. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 1.1079 are viewed as a medium term correction. At this point, we’re still slightly favoring the case that such correction is completed at 0.8659 already, ahead of 50% retracement of 0.6008 to 1.1079 at 0.8544. However, such view is dampened by the fact that AUD/USD failed to sustain above 55 weeks EMA and was rejected from there. Further downside acceleration could extend the correction from 1.1079 through 0.8659 to 0.8544 fibonacci level and below.

AUD/USD 4 Hours Chart

AUD/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:30
NZD
Business NZ Manufacturing Index Aug
56.5

53
53.5
4:30
JPY
Industrial Production M/M Jul F

0.20%
0.20%

8:30
GBP
Construction Output M/M Jul

0.60%
1.20%

9:00
EUR
Eurozone Industrial Production M/M Jul

0.60%
-0.30%

9:00
EUR
Eurozone Employment Q/Q Q2

0.10%

12:30
USD
Import Price Index M/M Aug

-1.00%
-0.20%

12:30
USD
Advance Retail Sales Aug

0.40%
0.00%

12:30
USD
Retail Sales Less Autos Aug

0.30%
0.10%

13:55
USD
U. of Michigan Confidence Sep P

83.1
82.5

14:00
USD
Business Inventories Jul

0.50%
0.40%

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