Mid-Day Report: Dollar Extends Rally, Firm on Strong Consumer Confidence

Dollar strengthens against other major currencies today and the rally accelerates after strong confidence data. Conference Board consumer confidence jumped to 90.9 in July versus expectation of 85.5. That’s also the highest level since October 2007. SP Case-Shiller 20 cities house price rose 9.3% yoy, missing expectation of 9.8% yoy but was ignored by markets. Dollar index surges to as high as 81.20 so far and is still on track to test 81.48 key resistance. Stocks also respond positively with DOW reclaiming 17000 handle. The greenback would possibly stay firm for the rest of the day but traders would likely remain cautious ahead of the key events of GDP and FOMC tomorrow.

Released from UK, mortgage approvals rose to 67.2k in June, beating expectation of revised 62k. That’s the first rise since January. The data triggered talks that recent loss of momentum in the housing market was temporary only. BoE governor Carney warned that housing is the biggest domestic threat to recovery. However, he also noted that controls on bank lending should be done to safe guard against the housing bubble. Yesterday, IMF said in a report that BoE’s ultra loose monetary policy “might need to be adjusted quickly” if there’s increasing inflationary pressures. The fund urged UK to “ensure that strong growth persists, without creating inflationary pressures or financial stability risks.” It projected UK economy to grow at 3.2% in 2014, the highest among advanced economies. Regarding risks to the outlook, it noted that the withdrawal of unconventional monetary policies in the US, sharp slowdown in Eurozone and emerging economies, and increasing geopolitical tensions could disrupt the global economy.

Released from Japan, unemployment rate rose to 3.7% in June versus expectation of 3.5%. Household spending dropped -3.0% yoy in June versus expectation of -3.7% yoy. Retail sales dropped -0.6% yoy in June versus consensus of -0.4% yoy. Some economists doubted if the economy is really recovering from the April sale tax hike, which the government claimed. And there’s chance that consumption could remain weak in the September quarter. Nonetheless, inflation would remain the key data BoJ watches for. Released from Japan last week, core CPI adjusted for tax hike dropped to 1.3% yoy in June. Some analysts noted that BoJ could be forced to ease policy again if core CPI breaks the 1% mark.

BoJ board member Ishida said that “exports continue to move sideways and lack momentum”. And, “it’s also uncertain how much the (yen’s) decline will lead to an expansion in export volume.” Also, “a major focus in the near term is whether consumption will return to an upward trend in the July-September period as anticipated”. He also said that “economic data fluctuates every month, so it’s hard to set a single standard in judging whether our target is met in a stable manner”, and “that’s a judgement call”.

Daily Pivots: (S1) 101.76; (P) 101.83; (R1) 101.92; More…

USD/JPY’s rise extends in early US session and reaches as high as 102.11 so far. Intraday bias remains on the upside for 102.26 resistance. As noted before, the choppy fall from 102.79 has completed at 101.06 already. Break of 102.26 will confirm this bullish case and target 102.79 resistance and above. Overall, the pair is still bounded in the sideway pattern from 100.75 and we’d expect more sideway trading ahead. On the downside, below 101.71 minor support will turn bias back to the downside.

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.

Jobless Rate Jun

Household Spending Y/Y Jun

Retail Trade Y/Y Jun

Mortgage Approvals Jun

M4 Money Supply M/M Jun

SP/Case-Shiller Composite-20 Y/Y May

Consumer Confidence Jul

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