Mid-Day Report: Dollar Surges on Housing Data, Sterling Weak on CPI

Dollar rises broadly in early US session and finally break out from recent range against Euro. Solid housing data is giving the greenback a boost. Housing starts rose 15.7% to 1.09m annualized rate in July versus expectation of 0.97m. That’s the highest level in eight months. Building permits also rose to 1.05m versus expectation of 1.00m. Released yesterday, the NAHB housing market index rose to 55, highest in seven months. Also released from US, CPI slowed to 2.0% yoy in July while core CPI was unchanged at 1.9% yoy. Both were inline with expectations.

Sterling weakens broadly today as weaker than expected inflation data supports BoE to keep rates unchanged at the record low of 0.50% for longer. Headline CPI slowed to 1.6% yoy in July versus expectation of 1.8% yoy, down from June’s 1.9% yoy. Core CPI slowed to 1.8% yoy versus expectation of 1.9% yoy, down from prior month’s 2%. yoy. RPI slowed to 2.5% yoy versus expectation of being unchanged at 2.6%. PPI input dropped -7.3% yoy versus expectation of -6.4% yoy, PPI output dropped 0.1% yoy versus expectation of 0.0%, PPI output core slowed to 0.9% yoy versus expectation of 0.9% yoy. The headline CPI moved further away from BoE’s target of 2-3% and give the MPC room to keep rates unchanged. Some economists noted that UK inflation could stay weak over the coming months.

The RBA minutes for the August meeting confirmed the central bank’s guidance that interest rates would stay low for a considerable period of time. The minutes also unveiled that policymakers continued to see significant uncertainties in the economic outlook, as well as a ‘notable degree spare capacity in the labor market’. While the Statement on Monetary Policy showed downward revisions of staff’s forecast on growth, the members did not see the outlook was ‘materially different’ and considered ‘the implications for the forecasts of the usual assumptions that the cash rate and the exchange rate remained at their current levels and noted that the no-change assumption for the cash rate was consistent with market expectations over the near term’. More in RBA Saw Uncertainties in Economy, Left Interest Rates Low for Some Time.

New Zealand dollar tumbled sharply today after PPI data. PPI inputs dropped -1.0% qoq in Q2 versus expectation of 0.7% qoq. PPI outputs dropped -0.5% qoq versus expectation of 0.8% qoq. RBNZ 2 year inflation expectation is 2.2% in Q3 versus 2.4% in Q2.

Daily Pivots: (S1) 1.3344; (P) 1.3371 (R1) 1.3391; More….

EUR/USD drops to as low as 1.3318 so far in early US session and the break of 1.3332 temporary low confirmed resumption of recent fall from 1.3993. Intraday bias is back on the downside for 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209 next. As downside momentum is not too convincing, we’d probably seen strong support from 1.3209 to bring lengthier consolidation. On the upside, break of 1.3411 is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

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

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
22:45
NZD
PPI Inputs Q/Q Q2
-1.00%
0.70%
1.00%

22:45
NZD
PPI Outputs Q/Q Q2
-0.50%
0.80%
0.90%

01:30
AUD
RBA Minutes

03:00
NZD
RBNZ 2-Year Inflation Expectation Q3
2.20%

2.36%

08:00
EUR
Eurozone Current Account (EUR) Jun
13.1B
21.3B
19.5B
19.8B
08:30
GBP
CPI M/M Jul
-0.30%
-0.20%
0.20%

08:30
GBP
CPI Y/Y Jul
1.60%
1.80%
1.90%

08:30
GBP
Core CPI Y/Y Jul
1.80%
1.90%
2.00%

08:30
GBP
RPI M/M Jul
-0.10%
-0.10%
0.20%

08:30
GBP
RPI Y/Y Jul
2.50%
2.60%
2.60%

08:30
GBP
PPI Input M/M Jul
-1.60%
-1.00%
-0.80%

08:30
GBP
PPI Input Y/Y Jul
-7.30%
-6.40%
-4.40%
-4.50%
08:30
GBP
PPI Output M/M Jul
-0.10%
0.10%
-0.20%
-0.10%
08:30
GBP
PPI Output Y/Y Jul
-0.10%
0.00%
0.20%
0.30%
08:30
GBP
PPI Output Core M/M Jul
0.00%
0.00%
0.00%
-0.20%
08:30
GBP
PPI Output Core Y/Y Jul
0.90%
0.90%
1.00%

12:30
USD
CPI M/M Jul
0.10%
0.10%
0.30%

12:30
USD
CPI Y/Y Jul
2.00%
2.00%
2.10%

12:30
USD
CPI Core M/M Jul
0.10%
0.20%
0.10%

12:30
USD
CPI Core Y/Y Jul
1.90%
1.90%
1.90%

12:30
USD
Building Permits Jul
1.05M
1.00M
0.97M
0.96M
12:30
USD
Housing Starts Jul
1.09M
0.97M
0.89M
0.95M

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