Mid-Day Report: Dollar Index Staying in Range ahead of an Eventful Week

The Japanese yen is generally lower today as risk markets extended last week’s rebound. Meanwhile, Sterling was lifted by comments from BoE governor Carney. US events will be the major focus this week. In particular, the annual event of the Jackson Hole symposium will start on Thursday. With the theme “Reevaluating Labor Market Dynamics”, this year’s conference should provide chance for Fed Chair Yellen to expand her dashboard, how she view the US job market and using what indicators. On Tuesday, the inflation report might show headline CPI easing to 2% yoy in July from 2.1% a month ago. Core inflation probably stayed at 1.9%. July housing starts and permits would also be due on Tuesday. The July FOMC minutes would be released on Wednesday. On Thursday, the Philly Fed survey and flash Markit manufacturing PMI would allow a glimpse of the health of the manufacturing sector.

The dollar index has been consolidating below 81.71 for a while but the pull back is so far rather shallow. Overall near term outlook stays bullish with 80.99 minor support intact. And we’d be expecting another rally sooner or later to extent the rise from 78.90. Also, prior break of 81.48 resistance suggested that 78.90 was a medium term bottom, as it’s also close to long term fibonacci level at 78.72. Above 81.71 will pave the way for a test on 84.75 high.

Other focuses include the RBA minutes and the BOE minutes would be due on Tuesday and Wednesday respectively. A number of flash PMI data for August would be released on Thursday. In China, the flash manufacturing PMI (by HSBC/Markit) for August probably shows a -0.2 point drop to 51.5. In the Eurozone, the preliminary PMI probably fell -0.4 point to 51.4 in August with deterioration of manufacturing activities seen in Germany, the largest economy in the 18-nation bloc. Germany’s PMI probably dropped to 51.8 in August from 52.4 a month ago. More in The Week Ahead – All On The US: Jackson Hole, CPI, FOMC Minutes…

As for today, UK Rightmove house price index dropped -2.9% mom in August. Eurozone trade surplus came in narrower than expected at EUR 13.8b in June. Canada international securities transactions dropped CAD -1.07b in June.

Daily Pivots: (S1) 1.3368; (P) 1.3389 (R1) 1.3421; More….

Intraday bias in EUR/USD remains neutral for the moment. Near term outlook stays mildly bearish and deeper decline is still expected. Below 1.3332 will target 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209. But in that case, strong support should be seen there to bring rebound. . Meanwhile, above 1.3444 will confirm short term bottoming and turn bias back to the upside for 1.3502 support turned resistance.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

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