Euro is somewhat hit by risk aversion and retreat sharply after jumping initially to 1.3027 against dollar and fails to sustain above 1.30 level. EUR/JPY also bounces off from 113.40 resistance again. US housing starts fell more than expected to 549k in June, hitting the lowest level since last October. Building permits, though, rose slightly to 586k. Sentiments is also weighed down by news that Goldman Sachs' profit dropped -82% in Q2 and missed expectations. Sterling, on the other hand is pressured by a string of weak data released earlier today. Canadian dollar is also soft after a dovish rate hike from BoC.
Bank of Canada raised overnight rates for the second time in two months, by 25bps to 0.75% as markets expected. The Bank Rate is now correspondingly 1.00% while deposit rate is 0.50%. Nevertheless, the bank warned that there are considerable uncertainty surrounding the outlook and hence, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments. Growth projection for 2011 was lowered from 3.1% to 2.9% but that for 2012 was raised from 1.9% to 2.2%. Meanwhile, the bank also forecast the economy would return to full capacity by end of 2011, two quarters later than last estimate in April. Regarding inflation, the bank expect it to be near to the target 2% through the end of 2012.
RBA minutes released today showed that policy makes are cautious about further rate hikes, with an eye on upcoming inflation data as well as development in global recovery. The minutes echoed recent statements and said that recent rate hikes had resulted in interest rates paid by borrowers returning to around average levels and afforded flexibility to maintain steady settings in the face of increased international uncertainty. Meanwhile, the minutes also emphasized that the important question for the board at its next meeting would be whether the new information materially changed the medium-term outlook for inflation. Q2 CPI due on July 28 will be an important event to watch going forward. But still, bear in ming that PM Gillard called for a federal election on August 21 and markets speculates that RBA will not move during an election campaign.
On the data front, UK public sector net borrowing dropped less than expected to GBP 14.5b in June. Major banks mortgage approvals also dropped to 48k in June. Though, M4 money supply was flat mom in June and rose 3.0% yoy. CBI trends orders improved to -16 in July. Swiss trade surplus came in larger than expected at CHF 1.77b. German PPI rose 0.6% mom, 1.7% yoy in June.
GBP/CHF drew support from 1.5825 and recovered earlier this month. But today's sharp fall argues that such recovery might be finished and bias is back to the downside for 1.5825 support. As expected before, we'd expect current decline, which is part of the whole fall from 1.8111, to extend through 1.5825 and have a test on 2008 low of 1.5111 in medium term. We'll stay bearish in the cross as long as 1.6298 support turned resistance holds.
USD/CAD Mid-Day Outlook
Daily Pivots: (S1) 1.0504; (P) 1.0542; (R1) 1.0586; More.
USD/CAD's break of 1.0580 suggests that rise from 1.0275 has resumed after brief consolidations and further rally should be seen to 1.0675 resistance first. As noted before, price actions from 1.0734 are viewed as sideway consolidation pattern, probably in form of triangle. Break of 1.0675 resistance will argue that such consolidation is completed and rise from 0.9929 low is resuming for another high above 1.0851. On the downside, in case of another fall, we'd expect downside to be contained by 1.0138 support and finally bring rally resumption.
In the bigger picture, as long as 1.0138 support holds, we'd still favor the case that USD/CAD has made a medium term bottom at 0.9929 on bullish convergence condition in weekly MACD. Stronger rebound is expected after finishing the current sideway trading from 1.0734, towards 38.2% retracement of 1.3063 to 0.9929 at 1.1126 first, with prospect of extending further to 61.8% retracement at 1.1866 and above. However, considering that USD/CAD cannot take out 55 weeks EMA decisively yet, break of 1.0138 will shift favor back to the case that 0.9929 is not the bottom yet. Though, considering bullish convergence conditions in daily and weekly MACD, we believe that medium term decline from 1.3063 is going to reverse soon, probably after a brief break of 0.9929 low. Hence, focus will be on reversal signal even in case of another fall.