Japanese yen remains firm in early US session as risk aversion continues to dominate the markets. Yen's strength is seen across the board and in particular against AUD, GBP and NZD. Some stabilization is seen in early US session after release of stronger than expected ISM non-manufacturing index. However, today's sharp fall in yen crosses still carry some technical significance as the medium term trend line support are finally taken out in EUR/JPY, GBP/JPY and AUD/JPY which is building up the case for medium term rally in yen. Major global indices including Nikkei, FTSE 100, DAX, CAC 60, are down over 1% on concern of sustainability of recovery in the economy. Dow opens lower in early US session and dives to as low as 8211 level but recovers mildly. Nevertheless, the break of head and shoulder neckline support in Dow does suggest more downside ahead. Crude oil also falls to as low as 63.4 so far and remains pressured.


Dow Jone Industrial Average

Despite falling against yen, dollar does manage to strength against most other major currencies today. However, the greenback seems to be losing upside momentum in early US session and we might see some sideway trading first. Nevertheless, dollar index's break of the near term channel resistance today suggests that choppy consolidation from 81.36 has completed at 79.36 already. We're favor more upside in the dollar index as long as 80.27 minor support holds. Break of 81.36/47 resistance zone will confirm that whole rise from 78.33 has resume and should then target 82.63 cluster resistance (38.2% retracement of 89.62 to 78.93 at 82.64) next. Below 80.27 will delay the bullish view and bring some more sideway trading first.


Dollar Index

On the data front, ISM non-manufacturing index beat expectations by rising to 47 in Jun, getting closer to 50 level. Improvements are also generally seen in the components with new orders rising to 48.6 and employment rising to 43.4. Price paid components also rose back to above 50 at 53.7. Eurozone Sentix Investor Confidence expectedly deteriorated to -31.3 in Jul. Japan Leading index rose slightly from 76.2 to 77 in May.


US ISM non-manufacturing index

Looking ahead in the coming Asian session, RBA will leave the cash rate unchanged at 3% for the third months, citing facts that both domestic and global economic conditions have shown signs of improvement. In the accompanying statement, we believe Governor Glenn Stevens will reiterate the central bank's stance to monitor the impact of previous rate cuts and government cash handouts on the economy.


RBAs' Policy Rate

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3936; (P) 1.3981; (R1) 1.4036;

EUR/USD's fall extends to a low as 1.3876 today before recovering mildly. At this point, intraday bias remains on the downside as long as 1.3998 minor resistance holds. As discussed before, the break of inner channel support affirms that case that choppy recovery from 1.3747 is merely a correction to fall from 1.4337 and has completed. Further decline should be seen to this low and break will confirm this case and should then target medium term channel support (now at 1.3517). On the upside, above 1.3998 minor resistance will turn intraday outlook neutral first. But risk will now remain on the downside as long as 1.4196 resistance holds.

In the bigger picture, as mentioned before, rise from 1.2456 is treated as the third leg of medium term triangle consolidation from 1.2329 (first leg completed at 1.4719, second at 1.2456). With daily MACD staying below signal line, it's likely that such rise has completed at 1.4337 already. Break of 1.3747 will add more credence to this case and firm break of channel support (now at 1.3517) will confirm and bring deeper fall to 1.2456/2884 support zone. Though, in such case, as we're favoring that it's developing into triangle consolidation, downside should be contained by 1.2456/2884 support zone and bring one more rise to complete the consolidation.

On the upside, above 1.4337 will delay the bearish case and indicate that rise from 1.2456 is still in progress. Nevertheless, as this rise is still treated as part of the medium term consolidation, it should be limited by 1.4719/4867 resistance zone. Hence, upside potential should be limited and focus will still be on reversal signal even in case of another rise.