More Upside in Dollar and Yen on Falling Stocks, Commodities and Yield

Dollar strengthens mildly in early US session following dropped weakness in commodities which saw crude oil back pressing 70 level while gold also fell below 950. Canadian dollar is particularly weak after release of worse than expected GDP report which showed 0.1% mom growth June while Q2 annualized rate was at -3.4% qoq, lower than expectation of -3.0%. US stocks open lower and dropped below 9500 level. Nevertheless, treasury yield is still holding above last week's low and thus, yen crosses are still steadily in range after earlier selloff.

As noted before a breakout is due in the markets and the developments in US session would probably trigger some wild movements. Firstly, DOW is now close to key near term support of 9459 and sustained breaking of which will confirm that at least a short term top is formed. Secondly, we'd maintain that yield on 10 year note is vulnerable to a break below 3.4%. Thirdly, CRB commodity index's lack of strength for rebound and the fall today puts recent support at 252.6 in focus. So markets are now vulnerable to downside break of stocks, yields and commodities and when that happens, dollar and yen will likely be boosted further.

On the data front, Chicago PMI rose more than expected to 50 in August. Eurozone flash CPI showed less than expected fall by -0.2% in August. A bunch of economic data were released from Japan overnight which saw Manufacturing PMI improved from 50.4 to 53.6 in August. Industrial production rose more than expected by 1.9% mom in July with yoy rate improved to -22.9%. Retail sales also fell less than expected by -2.5% yoy in July. House starting, though, improved less than expected to -32.1% in July.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0825; (P) 1.0880; (R1) 1.0971; More.

USD/CAD's rise from 1.0790 extends further in early US session and the break of 1.1019 resistance indicates that rise from 1.0718 has resumed. The development adds more favor to the case that price actions from 1.1074 to 1.0718 are merely consolidation to rally from 1.0631 only. That is, such rise is still in progress. Break of 1.1230 resistance will confirm this case and all affirm the case that USD/CAD has bottomed out too. On the downside, below 1.0970 minor support will turn intraday outlook neutral first. But further rise will now be in favor as long as 1.0790 support holds.

In the bigger picture, there is no change in the view fall from 1.3063 is correction to the five wave rally from 0.9056. Also, such correction is expected to conclude inside 1.0297/0819 support zone. On the upside, sustained break above trend line resistance at 1.1150 will be an important signal that such fall has completed and will turn focus to 1.1723 resistance for confirmation. On the downside, while another low below 1.0631cannot be ruled out, focus will remain on reversal signal in case of another fall.

USD/CAD

Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:15JPYManufacturing PMI Aug53.6--50.4 
23:50JPYIndustrial Production M/M Jul P1.90%1.40%2.40%2.30%
23:50JPYIndustrial Production Y/Y Jul P-22.90%-23.10%-23.50% 
23:50JPYRetail Trade Y/Y Jul-2.50%-3.30%-3.00%-2.90%
03:00NZDNBNZ Business Confidence Aug34.2--18.7 
05:00JPYHousing Starts Y/Y Jul-32.10%-30.30%-32.40% 
09:00EUREurozone CPI Estimate Y/Y Aug-0.20%-0.40%-0.60%-0.70%
12:30CADGDP M/M Jun0.10%0.20%-0.50% 
12:30CADGDP Annualized Q/Q Q2-3.40%-3.00%-5.40%-6.10%
13:45USDChicago PMI Aug5047.443.4 
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