Dollar and yen rise mildly in early US session following worse than expected PPI report and new residential construction from US. Commodities are dragged mildly lower together with treasury yield too. Nevertheless, the strength is so far not strong enough to resume recent rally as stocks has muted reactions to the data and open slightly firmer. Some more consolidation would likely be seen be dollar and rise again.
Released from US, housing starts unexpected dropped from revised 587k to 581k annualized rate in July. Building permits also dropped to 560k annualized rate. Headline PPI dropped much more than expected by -0.9% mom in July, dragging yoy rate sharply lower to -6.8% yoy. Core PPI, also unexpectedly dropped -0.1% mom and sent yoy rate down from 3.3% to 2.6%.
Sterling was lifted by stronger than expected inflation from UK in European session. Headline CPI was flat mom in July versus expected of -0.3% while yoy rate was unchanged at 1.8%. Core CPI indeed climbed from 1.6% to 1.8% yoy. Sterling pares some of recent losses against Euro and dollar. German ZEW economic sentiment rose much more than expected to 56.1 in Aug, hitting the highest level in over 3 years. Current situation indicator also improved to -77.2. Eurozone ZEW also jumped much more than expected to 54.9. However, the data provided little support to the common currency.
RBA meeting minutes released overnight affirms markets' expectation that the next move will be a hike. The minutes said that the need for further reductions in the already emergency setting of the cash rate clearly has passed. Nevertheless, RBA is clearly concerned that the timing and process of removing some of the expansionary policy setting would involve balancing two risks, including overstaying a very accommodative setting and risk of an early tightening choking off confidence and demand prematurely. After all, the timing and size of the next move is uncertain for the moment.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.4020; (P) 1.4106; (R1) 1.4168; More
Outlook in EUR/USD remains unchanged. Intraday bias remains on the downside with 1.4159 minor resistance intact. Fall from 1.4446 is still expected to continue to 1.4007 support next. 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 recovery should be limited below 1.4326 resistance and bring fall resumption.
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.
Economic Indicators Update
|01:30||AUD||RBA Meeting Minutes||--||--|
|08:30||GBP||CPI M/M Jul||0.00%||-0.30%||0.30%|
|08:30||GBP||CPI Y/Y Jul||1.80%||1.50%||1.80%|
|08:30||GBP||Core CPI Y/Y Jul||1.80%||1.50%||1.60%|
|08:30||GBP||RPI M/M Jul||0.00%||-0.20%||0.30%|
|08:30||GBP||RPI Y/Y Jul||-1.40%||-1.70%||-1.60%|
|09:00||EUR||German ZEW Sentiment Aug||56.1||45||39.5|
|09:00||EUR||Eurozone ZEW Sentiment Aug||54.9||43||39.5|
|12:30||CAD||International Securities Transactions (CAD) Jun||10.51B||13.55B||18.89B|
|12:30||USD||PPI M/M Jul||-0.90%||-0.20%||1.80%|
|12:30||USD||PPI Y/Y Jul||-6.80%||-5.80%||-4.60%|
|12:30||USD||PPI Core M/M Jul||-0.10%||0.10%||0.50%|
|12:30||USD||PPI Core Y/Y Jul||2.60%||2.80%||3.30%|
|12:30||USD||Housing Starts Jul||581K||598K||582K||587K|
|12:30||USD||Building Permits Jul||560K||576K||570K|