Dollar stays firm today and maintain the broad based weekly gain. The cautious FOMC statement released overnight halted the greenback’s GDP inspired rally. But there is no change in the overall near term bullish outlook. So far, the greenback is gaining most against the Japanese yen thanks to strong rebound in treasury yields. Aussie is feeling additional pressure today after much weaker than expected housing data. Meanwhile, Canadian dollar followed closely as recent reversal continues. The economic calendar is rather busy today, in particular with Eurozone CPI and Canadian GDP featured. But markets could be a bit cautious before tomorrow’s non-farm payroll report from US.
As expected, the FOMC tapered by another US$ 10B in July with few changes in the monetary statement. The reduction in purchase was evenly divided between Treasuries and MBS, taking the former down to US $15B per month and the latter down to US $10B per month. Policymakers acknowledged rebound in the economy in the second quarter of the year, noting ‘somewhat diminished’ downside risks to inflation and improvements in labor market conditions. Yet, they cautioned that a number of labor market indicators signaled that slacks remained ‘significant’. The statement suggested that the Fed is not in any rush to hike interest rates. More in FOMC Focused On Slack In Job Market Despite Resilient 2Q14 Growth.
In addition to the strong rally in dollar, there are two developments to note in the financial markets. Firstly, DOW’s decline this week now put focus back to 16805.38 key near term support level. Further fall and break of this support will confirm topping at 17151.56, just missing 100% projection of 14719.43 to 16588.25 from 15340.69 at 17209.51, on bearish divergence condition in daily MACD. And in such case, we’d see deeper pull back to medium term trend line support (now at 16480. And such development could put additional pressure on commodity currencies.
Secondly, the strong rally is TNX, 10 year yield, suggests that pull back from 2.692 is already finished at 2.448. The current development sets up stronger rebound back to test 2.692 resistance. That would likely be accompanied by USD/JPY rise back towards 104.12 resistance. The reactions from 2.692 would be closely watched. At this point, we’re favoring that TNX is in a sideway pattern between 2.402 and 2.692. USD/JPY is in the sideway pattern between 100.75 and 104.12. Decisive break of 2.692 would trigger an upside breakout in USD/JPY too.
On the data front, UK Gfk consumer sentiment dropped to -2 in July. Australia import price dropped -3.0% qoq in Q2, building approvals dropped sharply by -5.0% mom in June. Japan labor cash earnings rose 0.4% yoy in June while housing starts dropped -9.5% yoy in June. German unemployment, Eurozone unemployment and CPI will be featured in European session. Canada GDP, US Challenger job cuts, employment cost index, jobless claims and Chicago PMI will be featured in US session.
Daily Pivots: (S1) 102.18; (P) 102.63; (R1) 103.23; More…
USD/JPY rose to as high as 103.08 so far and reached mentioned target of 100% projection of 100.82 to 102.79 from 101.06 at 103.03 already. Intraday bias remains on the upside and further rally could be seen towards 104.12 resistance. Nonetheless, as the pair is still bounded in the sideway pattern from 100.75, we’d be cautious on strong resistance below 104.12 to limit upside. On the downside, below 102.59 minor support will turn bias neutral and bring retreat first.
In the bigger picture, at this point, there is no confirmation of medium term reversal yet even though bearish divergence condition was clear in weekly MACD. Attention remains on 100.61 key support level and decisive break there will confirm the bearish case. In that case, deeper decline should be seen back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.
GfK Consumer Sentiment Jul
Import Price Index Q/Q Q2
Building Approvals M/M Jun
Labor Cash Earnings Y/Y Jun
Housing Starts Y/Y Jun
German Unemployment Change Jul
German Unemployment Rate Jul
Eurozone Unemployment Rate Jun
Eurozone CPI Estimate Y/Y Jul
Eurozone CPI – Core Y/Y (JUL A)
Challenger Job Cuts Y/Y Jul
GDP M/M May
Employment Cost Index Q2
Initial Jobless Claims (JUL 26)
Chicago PMI Jul
Natural Gas Storage