Mid-Day Report: Dollar Stays Soft as US Launched Airstrikes in Syria

Dollar is generally lower today on news that US and five Arab allies launched the first wave of airstrikes in Syria. The US Central Command said in a statement that 141 Islamic State targets were hit and were destroyed or damaged while the aircrafts exited the strike areas safely. Nonetheless loss in the greenback is so far limited with EUR/USD struggling to grad 1.29 handle. USD/JPY is trading around 108.50 for the moment and is supported well above 106.80 near term support. Current development suggests that dollar is in consolidative mode rather than reversing.

The retreat in dollar started yesterday as a Fed dove warned of the strength of the currency. New York Fed president William Dudley said that a strong dollar would mean “poorer trade performance, less exports, more imports”. And, appreciation of the dollar would “tend to dampen inflation” and make it harder to achieve Fed’s mandate. Separately, Minneapolis Fed president Narayana Kocherlakota urged Fed to “sharpen” the statement of its objective. In particular, he noted Fed should be clear on inflation, which is undesirable to be too high and too low. Meanwhile, it’s reported that two Fed hawks, Philadelphia Fed president Charles Plosser and Dallas Fed president Richard Fisher will retire next year after completing the terms on FOMC.

Euro is mildly higher against dollar and yen today despite weak PMI data. Eurozone PMMI manufacturing dropped slightly to 50.5 in September while services PMI dropped to 52.8. Both were below market expectations. German PMIs were mixed as manufacturing PMI dropped to 50.3 versus consensus of 51.2. Services PMI rose to 55.4 versus a fall to 54.6. French PMIs were also mixed as manufacturing PMI rose to 48.8 versus expectation of 47.1. Services PMI dropped to 49.4 versus expectation of 50.2.

Yesterday, ECB president Mario Draghi said the central bank is moving to a more “active and controlled management of our balance sheet.” He noted that while outright purchases of ABS and covered bonds would increase the size of the balance sheet but “additional risk exposure will be limited”. Regarding the economy, he added “the risks surrounding the expected expansion are clearly on the downside.” Also he said that the ECB stands ready to use additional unconventional instruments, or alter the size and composition of the current policies when necessary.

Elsewhere, UK BBA mortgage approvals dropped to 41.6k in August while public sector net borrowing rose rose to GBP 10.9b. Canada retail sales dropped -0.1% mom in July while ex-auto sales dropped -0.6% mom.. Released from China, the flash HSBC PMI manufacturing rose to 50.5 in September, beating expectation of a fall to 50.0. HSBC noted that the activities showed “signs of stabilization” in September and the data point to “modest expansion” in China’s manufacturing sector. Nonetheless, the downturn in property markets remains the biggest downside risk to growth.

Daily Pivots: (S1) 108.58; (P) 108.89; (R1) 109.11; More…

USD/JPY’s retreat from 109.45 temporary top extends lower today. Intraday bias remains neutral first. We’d expect downside of retreat to be contained by 106.80 support and bring another rally. Above 109.45 will extend the larger rise to 100% projection of 96.56 to 105.43 from 101.08 at 109.95 next. Break there will pave the way to long term fibonacci level at 111.62. Meanwhile, break of 106.80 will indicate short term topping and bring lengthier consolidations before staging another rally.

In the bigger picture, whole medium term up trend from 75.56 is still in progress. Current upside accelerating indicates that the pair is building upside momentum again. Current rally would likely extend through 50% retracement of 147.68 to 75.56 at 111.62 to 61.8% retracement at 120.13 and above. On the downside, break of 101.08 is needed to signal medium term reversal, or outlook will stay bullish.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
01:45
CNY
HSBC PMI Manufacturing Sep P
50.5
50
50.2

07:30
EUR
German PMI Manufacturing Sep P
50.3
51.2
51.4

07:30
EUR
German PMI Services Sep P
55.4
54.6
54.9

08:00
EUR
Eurozone PMI Manufacturing Sep P
50.5
50.6
50.7

08:00
EUR
Eurozone PMI Services Sep P
52.8
53
53.1

08:30
GBP
BBA Mortgage Approvals Aug
41.6K
42.9K
42.8K
42.7K
08:30
GBP
Public Sector Net Borrowing (GBP) Aug
10.9B
10.5B
-1.1B
-0.5B
12:30
CAD
Retail Sales M/M Jul
-0.10%
0.50%
1.10%

12:30
CAD
Retail Sales Less Autos M/M Jul
-0.60%
0.00%
1.50%

13:00
USD
House Price Index M/M Jul
0.10%
0.50%
0.40%

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