Dollar extends recent rally in Asian session in response to last week’s balanced comments from Fed chair Yellen. Even though some analysts noted that Yellen’s speech was still dovish overall, her messages were inline with the FOMC minutes released earlier last week that Fed is on track to raise interest rates next year. On the other hand, that was a sharp contrast to ECB president Draghi’s message that ECB was ready for further actions as inflation expectations slide. Technically, EUR/USD breaches 1.32 handle today as recent rally extends and is heading back to 1.3 psychological level. USD/CHF also took out an important resistance level at 0.9156 which carries medium term bullish implications. USD/JPY broke and important resistance at 104.24 remains cautiously bullish for a test of 105.41 high. Nonetheless, the greenback is stuck in range against commodity currencies.
Fed Chair Janet Yellen delivered a balanced speech regarding the US labor market and monetary policy in the Jackson Hole symposium. She acknowledged that recent labor market data have performed better than the Fed’s forecasts and discussed the cyclical and structural factors contributing to the current employment situation. Yellen judged that cyclical factors remained prominent as significant underutilization remains. Therefore, policymakers should stay patient to the gradual move toward the exit. Overall, the comments have not changed the dovish stance of the Fed and have not done much to alter the central bank’s monetary policy outlook. More in Yellen’s Speech Was Balanced, Yet Dovish.
Dollar index reaches as high as 82.57s o far today as the really from 78.90 extends. Momentum remains strong as seen in daily MACD. But such momentum might start to slow down in the latter part of this week as daily RSI is now staying in overbought region for sometime. Nonetheless, outlook will remain bullish as long as 81.71 support holds. Current rise is expected to continue to 161.8% projection of 78.90 to 81.02 from 79.74 at 83.20. We’d start to look for topping signal as it approaches 84.75 high.
German Ifo will be the main focus in European session today. The Ifo business claim is expected to drop slightly to 107.1 in August. Current assessment gauge and expectations gauge are both expected to deteriorate to 112.0 and 102.1 respectively. Geopolitical tensions, in particular in Ukraine, is expected to drag further on investor’s sentiments. And there are rooms for downside surprise in today’s data. From US, new home sales is expected to rise to 426k annualized rate in July.
Looking ahead, the economic calendar isn’t very heavy this week. Dollar traders will look at durable goods orders, consumer confidence, GDP revision and jobless claims for reasons to push it higher. Meanwhile, Euro could be vulnerable to downside surprises on CPI data to be release on Friday.
- Tuesday: New Zealand trade balance; US durable goods orders, house price indices, consumer confidence
- Wednesday: Swiss UBS consumption indicator; German Gfk consumer sentiment
- Thursday: German CPI, unemployment, Eurozone M3; Swiss employment; US GDP, jobless claims, pending home sales
- Friday: Japan CPI, unemployment, industrial production, retail sales, housing starts; Swiss KOF; German retail sales, Eurozone CPI, unemployment; Canada GDP, IPPI and RMPI; US personal spending and income, Chicago PMI
Daily Pivots: (S1) 0.9108; (P) 0.9131; (R1) 0.9158; More….
USD/CHF’s rally continues today and reaches as high as 0.9178 so far. The break of 0.9156 carries larger bullish implications and focus is on whether the pair can sustain above this level. At this point, intraday bias remains on the upside for 100% projection of 0.8702 to 0.9036 and 0.8855 at 0.9189. Break will target 161.8% projection at 0.9395. On the downside, below 0.9103 minor support will turn bias neutral and bring consolidations first.
In the bigger picture, price actions from 0.9971 are viewed as a correction pattern. The sustained trading above 55 week EMA argues that it might be finished at 0.8698 already. Focus is back on 0.9156 resistance. Decisive break there should confirm this case and turn outlook bullish for a test on 0.9971 high. Meanwhile, break of 0.8855 near term support will dampen this bullish view and would extend the correction to 50% retracement of 0.7065 to 0.9971 at 0.8518 and below. In that case, we’ll start to look for reversal signal below 0.8518 again.