Mid-Day Report: Dollar Extends Gain as Yellen Testifies Again

Quick Update: Canadian dollar extends weakness after BoC left interest rates unchanged at 1.00% as widely expected. BoC noted that inflation hit 2% target “sooner than expected” due to “temporary effects”. It expected inflation to fluctuate around 2% over the next two years. Meanwhile, the central bank expected economic activity in Canada to be “a little weaker than previously forecast” due to downgrade of global outlook. The economy is also expected to reach full capacity “around mid 2016, a little later than anticipated” in April. Overall, “the Bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks.”

Dollar continues to strengthen against Euro and Swiss Franc in early US session. PPI was strong than expected, rising 0.4% mom, 1.9% yoy versus consensus of 0.2% mom, 1.8% yoy. PPI core rose 0.2% mom, 1.8% yoy versus consensus of 0.2% mom, 1.6% yoy. TIC capital flow was lower than expected at USD 19.4b in May. Industrial production rose 0.2% in June. The greenback surged yesterday since Fed chair Yellen’s testimony. Yellen will testifies again today to House. Fed will also release the Beige Book economic report in US afternoon.

Yesterday, in the semi-annual testimony before the Senate Banking Committee, Fed Chairman Janet Yellen reiterated that ‘a high degree of monetary policy accommodation remains appropriate’. While acknowledging the ‘notable improvements’ in the job market, Yellen warned that ‘significant slack remains’. Meanwhile, the chairman noted that the economy ‘continues to improve’ but warned that ‘the recovery is not yet complete’. It appears that Yellen attempted to downplay speculations of an earlier than expected rate hike upon recent improvement in the US economic data. Market reaction was volatile, in particular when Yellen commented that rate hike would come sooner if the ‘the labor market continues to improve more quickly than anticipated’. More in Yellen Assured Rates To Stay Low For Some Time While Hinted Early Tightening Should Employment Improve Further.

Sterling remains resilient against the greenback and strengthens against Euro after positive employment data. Claimant counts dropped more than expected by -36.3k in June versus expectation of -27.1k. Unemployment rate dropped to 6.5% in May, inline with consensus. Also released from Europe, Eurozone trade surplus came in lower than expected at EUR 15.3b in May. Swiss ZEW expectations dropped sharply to 0.1 in July.

China’s GDP grew 7.5% yoy in 2Q14, accelerating from 7.4% in the prior quarter. The National Statistics Bureau also reported that the sequential GDP growth soared to 8.2% q/q, saar in the second quarter, compared with 6.1% in the prior quarter.. On quarterly basis, growth accelerated to 2% q/q from an upwardly revised 1.5% in 1Q14. China’s GDP grew more than expected in 2Q14, thanks to the government’s fiscal and monetary stimulus. Meanwhile, economic data in June suggested that growth fixed asset investment and industrial production accelerated, indicating the stimulus began to take effect during the period. While the government probably feels less imminent to adopt further easing given the encouraging second quarter result, more stimuli are still needed as downside risks to growth remained, evidenced by slowing electricity production growth and a drop in the government’s VAT revenue. More in Chinese Growth Beat Expectations In 2Q14, Thanks To Stimulus.

Elsewhere, New Zealand dollar tumbled sharply today after lower than expected inflation data. CPI rose 0.3% qoq 1.6% yoy in Q2 comparing to expectation of 0.4% qoq, 1.8% yoy. NZD/USD’s rejection from key resistance level of 0.8842 (2011 high) might set up a bearish run in near term at least. Also released today, Australia Westpac leading index rose 0.1% mom in June.

Daily Pivots: (S1) 1.3544; (P) 1.3586 (R1) 1.3610; More….

EUR/USD drops further to as low as 1.3525 so far today and intraday bias remains on the downside. Current development suggests that fall from 1.3993 is resuming. Break of 1.3502 will target 1.3476 key support level next. On the upside, above 1.3575 minor resistance will delay the bearish case and turn bias to the upside to extend recent sideway consolidation.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. The choppy rise from 1.2042 is seen as a leg inside the pattern. Bearish divergence condition in daily and weekly MACD raises the chance that this leg is finished at 1.3993 already. Break of 1.3476 support will confirm this bearish case and should target 1.2755 and below. Meanwhile, break of 1.3993 is needed to confirm rally resumption. Otherwise, we won’t turn bullish even in case of strong rebound.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
CPI Q/Q Q2
0.30%
0.40%
0.30%

22:45
NZD
CPI Y/Y Q2
1.60%
1.80%
1.50%

00:30
AUD
Westpac Leading Index M/M Jun
0.10%

0.10%

02:00
CNY
GDP YTD Y/Y Q2
7.50%
7.40%
7.40%

02:00
CNY
Fixed Assets Ex Rural YTD Y/Y Jun
17.30%
17.20%
17.20%

02:00
CNY
Retail Sales Y/Y Jun
12.40%
12.50%
12.50%

02:00
CNY
Industrial Production Y/Y Jun
9.20%
9.00%
8.80%

08:30
GBP
Jobless Claims Change Jun
-36.3K
-27.1K
-27.4K

08:30
GBP
Claimant Count Rate Jun
3.10%

3.20%

08:30
GBP
ILO Unemployment Rate (3M) May
6.50%
6.50%
6.60%

09:00
EUR
Eurozone Trade Balance (EUR) May
15.3B
16.3B
15.8B
15.2B
09:00
CHF
ZEW (Expectations) Jul
0.1

4.8

12:30
CAD
Manufacturing Shipments M/M May
1.60%
1.30%
-0.10%
-0.20%
12:30
USD
PPI M/M Jun
0.40%
0.20%
-0.20%

12:30
USD
PPI Y/Y Jun
1.90%
1.80%
2.00%

12:30
USD
PPI Core M/M Jun
0.20%
0.20%
-0.10%

12:30
USD
PPI Core Y/Y Jun
1.80%
1.60%
2.00%

13:00
USD
Net Long-term TIC Flows May
19.4B
27.4B
-$24.2B
-41.2B
13:15
USD
Industrial Production Jun
0.20%
0.30%
0.60%

14:00
CAD
BoC Rate Decision
1.00%
1.00%
1.00%

14:00
USD
NAHB Housing Market Index Jul
53
50
49

14:30
USD
Crude Oil Inventories

-2.4M

18:00
USD
Fed’s Beige Book

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