Dollar's recovery was brief as risk appetite continues to dominate financial markets. Euro, Swissy and Aussie are resuming recent rally in early US session on anticipation of higher open in stocks. Upbeat earnings reports from some big names boost investor confidence, including UnitedHealth Group, Coca-Cola, Dupont, Merck& Co. Yahoo, Apple and Starbucks will also report earnings today. Crude oil surges to above 65 level along with other commodities and is set to take on the technically important 66 level. Bank of Canada left rates unchanged at 0.25% today and reiterated it's condition commitment to keep rates unchanged until end of 2Q10. Markets' focus will turn to Bernanke's testimony later in US morning but after all, there is no expectation on change in short term bearish dollar outlook.
Technically, dollar index's consolidation was brief and recent decline resumes in early US session by taking out yesterday's low of 78.80. Intraday bias remains on the downside as long as for 78.33 low next. There is no change in the view that consolidation from 78.33 has already completed and fall from 80.89 should represent the last leg in the five wave sequence from March's high of 89.62. Such decline is viewed as the third and last leg of whole medium term consolidation from 88.46 and hence should receive strong support from 75.89/77.69 support zone to conclude the consolidation. On the upside, above 79.06 will turn intraday outlook neutral first but break recovery should be limited below 80.89 resistance and bring fall resumption.
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.
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.
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.
BoJ minutes 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,
EUR/USD Mid-Day Outlook
EUR/USD's rally resumes after brief consolidation and at this point, intraday bias remains on the upside for a test of 1.4337 resistance first. As discussed before, consolidation from 1.4337 should have completed already and current rise is tentatively treated as resumption of medium term rally from 1.2456. Break of 1.4337 will confirm this case and target 61.8% projection of 1.2884 to 1.4337 from 1.3747 at 1.4645 next. On the downside, below 1.4181 minor support will turn intraday outlook neutral first but pull back should be contained well above 1.3832 support and bring rally resumption.
In the bigger picture, recent development suggests that rise from 1.2456 is still in progress, but there is no change in the view that it's the third leg of consolidation pattern that started at 1.2329. Also, note that the possible five wave structure indicates that it's the last leg of such consolidation. Having said that, while another high above 1.4337 is likely, upside should be limited by cluster resistance at 1.4622/45 (61.8% retracement of 1.6039 to 1.2329 at 1.4622 and 61.8% projection of 1.2884 to 1.4337 from 1.3747 at 1.4645) to conclude the whole consolidation. On the downside, below 1.3832 support will be the first signal that rise from 1.2456 has completed and will turn focus to trend line support (now at 1.3660) for confirmation.
Economic Indicators Update
|23:50||JPY||BoJ Meeting Minutes||--||--|
|01:30||AUD||RBA Meeting Minutes||--||--|
|06:15||CHF||Trade Balance (CHF) Jun||1.57B||1.87B||2.01B||2.00B|
|08:30||GBP||Public Sector Net Borrowing (Pounds) Jun||13.0B||15.7B||19.9B|
|13:00||CAD||BoC Interest Rate Decision||0.25%||0.25%||0.25%|
|14:00||USD||Fed's Bernanke Gives Monetary Policy Report Before House Panel||--||--|