Dollar recovers in Asian session today after Fed Chairman Bernanke pre-empted his testimony with an article titled The Fed's Exit Strategy in WSJ. Bernanke said that while accommodative policies will likely be warranted for an extended period, Fed was confident of the necessary tools to withdraw policy accommodation. And, Fed will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. To achieve this, Fed has four options, including firstly, by reverse repurchase agreements that reduce excess liquidity; secondly, sell bills and deposits the proceeds with Fed; thirdly, offer term deposits to banks; fourthly, selling a portion of its long-term securities holdings. All focus will turn to the semi-annual testimony in the US session for further details.
Another major focus of today is Bank of Canada rate decision. We expect BOC Governor Mark Carney will announce to leave the overnight rate target unchanged at +0.25% for another month and reiterate the stance that the rate can be expected to remain at its current level until the end of the second quarter of 2010, conditional on the outlook for inflation. Also, BoC will restate the possibilities of adopting the framework but whether it will actually be deployed is not guaranteed.
The Japanese yen was lifted by BoJ minutes which revealed that one policy members called for examination of exit strategy as corporate financing is improving. The member said that corporate financing, taken as a whole, was becoming less tight, and the Bank should therefore start considering specific ways to terminate the temporary and exceptional measures,
Released overnight, RBA minutes said that the current stance of monetary policy to be consistent with fostering sustainable growth and low inflation. The early and substantial easing of both monetary and fiscal policy had been effective in supporting demand, which, if anything, had been more resilient than expected. Outlook in Australia for a gradual recovery to begin later in the year.” And, the current inflation outlook afforded scope for some further easing of monetary policy, if that were to be needed to give further support to demand at a later stage.
Looking at the dollar index, while some recovery is still today, short term outlook remains bearish for a new low below 78.33 as whole fall from March's high of 89.62 is set to resume. A marginal break of 77.69 support is possible, but we're expecting strong support from 75.89/77.69 support zone to complete the fall from 89.62, as well as the whole consolidation three wave consolidation from 88.46. Above 79.66 will turn short term outlook neutral and probably bring some more sideway trading. But a break of 80.89 is still needed to indicate that fall from 89.62 has completed. Otherwise, risk remains on the downside.
AUD/USD Daily Outlook
AUD/USD's rally extends further to as high as 0.8179 before retreating mildly. Break of 0.8154 resistance is taken as another proof that consolidation from 0.8262 has completed at 0.7702 already. Further rally should now be seen to 0.8262 high first and break will confirm medium term rally resumption to 61.8% retracement of 0.9849 to 0.6008 at 0.8382. On the downside, while some retreat might be seen, short term outlook will remain bullish as long as 0.7970 support holds.
In the bigger picture, there is no change in the broader view that price actions from 0.6008 are correction to down trend form 0.9849 only. Rise from 0.6284 is the last leg and should be near to completion. While another rise might be seen, upside is expected to be limited by 0.8382/8519 resistance zone (61.8% retracement of 0.9849 to 0.6008 at 0.8382) and finally bring reversal. On the downside, below 0.7702 support will now be an important alert that AUD/USD has topped out and will turn short term outlook bearish for deeper decline.
Economic Indicators Update
|23:50||JPY||BoJ Meeting Minutes||--||--|
|1:30||AUD||RBA Meeting Minutes||--||--|
|6:15||CHF||Trade Balance (CHF) Jun||1.57B||1.87B||2.01B||2.00B|
|8:30||GBP||Public Sector Net Borrowing (Pounds) Jun||15.5B||19.9B|
|13:00||CAD||BoC Interest Rate Decision||0.25%||0.25%|
|14:00||USD||Fed's Bernanke Gives Monetary Policy Report Before House Panel||--||--|