Mid-Day Report: Dollar Bullish Runs Continues as ISM Manufacturing Surges to 3 Year High

Dollar extends recent rally against yen and other major currencies in early US session after better than expected manufacturing data. The ISM manufacturing index jumped to 59.0 in August, comparing to expectation of a fall to 56.8. That;s the highest reading in three years since March 2011. The employment component was also strong, dipping slightly to 58.1, just shy of last month’s three year high of 58.2. Also released from US, construction spending rose 1.8% mom in July versus expectation of 0.9% mom. The greenback is set to continue recent bullish momentum.

Sterling got no help from the better than expected PMI data and took out last week’s low of 1.6534 against dollar. UK PMI construction improved to 64 in August, versus expectation of a fall to 61.5. Eurozone PPI dropped -0.1% mom, -1.1% yoy in July as expected. Swiss GDP was flat qoq in Q2 versus expectation of 0.5% qoq. Japan monetary base rose 40.5% yoy in August, labor cash earnings rose 2.6% yoy in July.

The RBA left the cash rate unchanged at 2.5% for the 13th month in September. While standing on the sideline, policymakers stressed that the monetary policy remained ‘accommodative’ as interest rates, which had been low, had continued to ‘edge lower’ as ‘competition to lend has increased’. On economic developments, the central indicated that the spare capacity remaining in job market remained would keep the unemployment rate elevated for sometimes. Policymakers also warned of china’s property market and strength in the Australian dollar. Domestic economy is expected to grow a little below trend over the year ahead. More in RBA Kept The Powder Dry, Judging Spare Capacity Would Keep Unemployment Rate Elevated. Also released from Australia, current account deficit widened to AUD -13..7b in Q2, building approvals rose 2.5% mom in July.

Daily Pivots: (S1) 104.17; (P) 104.26; (R1) 104.42; More…

USD/JPY rises further to as high as 105.01 in early US session and intraday bias remains on the upside. Current rally would extend to 105.41 high. At this point, as price actions from 105.41 could unfold as a consolidation pattern, we’d be cautious on strong resistance from 105.41 to bring reversal. Below 104.27 minor support will turn bias back to the downside for 103.55 support first. Though, sustained break of 105.41 will confirm larger up trend resumption and will target 111.62 fibonacci level next.

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.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Monetary Base Y/Y Aug
40.50%
43.70%
42.70%

01:30
JPY
Labor Cash Earnings Y/Y Jul
2.60%
0.90%
0.40%
1.00%
01:30
AUD
Current Account Balance (AUD) Q2
-13.7B
-13.8B
-5.7B
-7.8B
01:30
AUD
Building Approvals M/M Jul
2.50%
1.70%
-5.00%
-3.80%
04:30
AUD
RBA Rate Decision
2.50%
2.50%
2.50%

05:45
CHF
GDP Q/Q Q2
0.00%
0.50%
0.50%

08:30
GBP
Construction PMI Aug
64
61.5
62.4

09:00
EUR
Eurozone PPI M/M Jul
-0.10%
-0.10%
0.10%

09:00
EUR
Eurozone PPI Y/Y Jul
-1.10%
-1.10%
-0.80%

14:00
USD
ISM Manufacturing Aug
59
56.8
57.1

14:00
USD
ISM Prices Paid Aug
58
59
59.5

14:00
USD
Construction Spending M/M Jul
1.80%
0.90%
-1.80%
-0.90%

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