Dollar and yen extend rally together with falling stocks and commodities. The moves started off in Asian as stocks tumbled and continue in European session with broad based weakness in European equities. Crude oil dives further, breaching 66 level while Gold also takes out 940 and is challenging 930. CRB commodity index is also sent lower to as low as 256.34 so far. The rally in dollar and yen takes a breath in early US session after the release of much better than expected Empire State Manufacturing index in US. Nevertheless, note that key near term resistance levels against major currencies are broken and further strength in dollar and yen in general are expected in near term.

Empire State Manufacturing index rose sharply to 12.1 in August, the first positive expansion reading since April 2008. Markets will look forward to Thursday's Philly Fed index which is expected to improve to -1.9 in August TIC Capital flow showed a sharp jump in inflow by $90.7B in June. Other data released today saw Eurozone trade surplus unexpectedly shrank from revised 1.1B to 1.0B in June. Swiss retail sales rose more than expected by 0.9% yoy in June. Japanese data released overnight showed impressive rebound of 0.9% qoq and 3.7% annualized in Q2. Nevertheless, the data missed expectation of 1.0% qoq, 3.9% annualized growth. GDP deflator also rose less than expected by 0.5% yoy only.

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Dollar index' break of 79.39 resistance confirms that rise from 77.43 has resumed. Also, note that the index could have completed a head and shoulder bottom formation (ls: 78.32, h: 77.43, rs: 78.23) and further rally should be seen to 100% projection of 77.43 to 79.39 from 78.23 at 80.19 next. Also, note that the current development is so far inline with the view that fall from March's high of 89.69 has completed with five waves down to 77.43 already. 81.47 will be the key resistance level for confirmation after taking out 79.66.

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EUR/USD Mid-Day Outlook

 EUR/USD dives further to as low as 1.4048 in early US session. Break of 1.4086 support confirms that fall from 1.4446 has resumed and further fall should be seen to 1.4007 support next. As discussed before, break there will solidify the case that a medium term top is already formed at 1.4446 and turn focus to 1.3747 support for confirmation. On the upside, above 1.4159 will turn intraday outlook neutral first. But risk remains on the downside as long as 1.4326 resistance holds.

In the bigger picture, as noted before, rise from 1.2456 is treated as the third leg of the whole consolidation pattern that started at 1.2329. Such rally has likely completed with five waves up to 1.4446 already, on bearish divergence conditions in daily MACD and RSI. Break of 1.3747 support will confirm this case and bring deep decline that will eventually send EUR/USD through 1.2329 low. On the other hand, above 1.4446 will in turn indicate that rise from 1.2456 is still in progress. But after all, strong resistance should be seen as EUR/USD approaches 61.8% retracement of 1.6039 to 1.2329 at 1.4622 and finally bring reversal.

EUR/USD

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:01GBPRightmove House Prices M/M Aug-2.20%--0.60% 
23:01GBPRightmove House Prices Y/Y Aug-3.10%---3.10% 
23:50JPYGDP Q/Q Q2 P0.90%1.00%-3.80% 
23:50JPYGDP Annualized Q2 P3.70%3.90%-14.20% 
23:50JPYGDP Deflator Y/Y Q2 P0.50%1.80%0.90% 
07:15CHFRetail Sales Y/Y Jun0.90%0.80%-1.40% 
09:00EUREurozone Trade Balance Jun1.0B1.4B0.8B1.1B
12:30USDEmpire State Manufacturing Aug12.12.2-0.55 
13:00USDNet Long-term TIC Flows Jun$90.7B$17.5B-$19.8B 
17:00USDNAHB Housing Market Index Aug 1817