Daily Report: Dollar Back Under Pressure in a Busy Day with Focus on Bernanke's Testimony

Market Overview | Written by ActionForex.com | Jul 15 08 07:52 GMT |

Dollar is back under pressure as a busy day starts, falling across the board and making new 25 year low against the Aussie. Markets are clearly concerned with the damage of the credit market losses to the US economy and that was not helped by Treasury/Fed's rescue package to Fannie Mae, Freddie Mac. Furthermore, renewed worry in the financial markets triggered traders to further pare bets on interest rate hike from Fed this year even though inflation is continuing to climb on rising oil and food prices. The odds of a hike from Fed by year end, as implied by interest rate futures, indeed dropped from 100% to 67%. Sentiments in the greenback remains fragile and further volatility is anticipated with a busy day ahead.

UK CPI will take center stage in European session. Headline CPI is expected to accelerate further from 3.6% to 3.8% yoy in Jun. RPI and RPI-C are expected to be unchanged at 4.3% yoy and 4.4% yoy respectively. BoE will likely be on hold at 5.00% for some time for, on the one hand, guarding against worsening inflation outlook, and, on the other hand, on worry of recession in UK. Germany ZEW economic sentiment is expected to drop further to 15 year low of -55 in Jul, confirming the slowdown in the Eurozone economy. However, note the fragile sentiments on the greenback, Euro and Sterling will likely remain firm against dollar even in case of lower than expected readings in today's data. The major movements in European session could be seen in EUR/GBP cross which has been trading sideway for a few months already. Stronger than expected CPI reading in UK and worse than expected German ZEW will likely trigger resumption of correction from 0.8090 high.

A string of important events are scheduled in the US session today. US PPI is expected to accelerate further from 7.2% to 8.5% yoy in Jun, with core PPI up from 3.0% to 3.2%. Empire state survey is expected to be steady at -8 in Jul. Retail sales is expected to show 0.5% mom growth, with ex-auto sales climbing 1.0% mom in Jun. Business inventories is expected to rise 0.5% in May. After all, the reactions to these data could be short-lived as main event of the day will be Bernanke's semiannual testimony on monetary policy and the economy before the Senate Banking Committee at 10 a.m. Washington time. And it remains doubtful if Bernanke still has any more bullets to boost the confidence on dollar.

Bank of Canada will also release rate decision today and is widely expected to be on hold at 3.00%.

Overnight, BoJ left rates unchanged at 0.5% as widely expected on unanimous 7-0 vote. In an unexpected move, BoJ released the monthly statement together with the announcement. BoJ acknowledged that economic growth is slowing, trimming GDP forecasts from 1.5% to 1.2% yoy. Domestic CGPI forecasts was up sharply from 2.5% yoy to 4.8% yoy while CPI excluding food was also up from 1.1% yoy to 1.8% yoy. The Bank of Japan also noted global financial markets remain unstable and downside risks to the U.S. economy and the world economy remain.

RBA also released minutes of Jul policy meeting today. Even though inflation remains high, RBA decided to left rates unchanged at 7.25% based on signs that domestic economy is cooling. The minutes basically affirmed RBA's believe that prior rate hikes are going to deal with inflation adequately even though risks of inflation expectations are still on the upside.

New Zealand Q2 CPI climbed from 3.8% to 4.0% yoy in Q2 but did little to alter the expectation that RBNZ may cut rates later this year on slowing economy.
AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9674; (P) 0.9705; (R1) 0.9747; More

AUD/USD surges further to as high as 0.9788 today and remains firm. Note that break of near term trendline resistance reaffirms underlying strength in AUD/USD and the current rise is expected to extend further to 100% projection of 0.9327 to 0.9667 from 0.9475 at 0.9815 first and then 1.0000 psychological resistance. On the downside, below 0.9705 minor support will indicate an intraday top is in place and bring consolidation. But pull back should be contained well above 0.9475 support and bring rally resumption.

In the bigger picture, the whole rally from 0.8512 is still in progress. Also, note that the break of near term trend line resistance and break out of bearish divergence conditions in daily MACD and RSI are both reaffirming the underlying strength in AUD/USD. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity. On the downside, break of 0.9475 support is needed to be the first signal that a short term top is formed. Otherwise, recent uptrend is still expected to extend further.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
22:45	NZD	New Zealand CPI Q/Q Q2	1.40%	1.40%	0.70%
22:45	NZD	New Zealand CPI Y/Y Q2	4.00%	3.80%	0.70%
23:01	GBP	U.K. RICS House Price Balance	-0.40%	-94.00%	-92.90%
23:01	GBP	U.K. BRC retail sales Jun	-88	N/A	1.90%
1:30	AUD	RBA Board Meeting Minutes
4:30	JPY	BOJ rate decision Jul	0.50%	0.50%	0.50%
6:00	JPY	BOJ Monthly report
8:30	GBP	U.K. CPI M/M Jun		0.40%	0.50%
8:30	GBP	U.K. CPI Y/Y Jun		3.80%	3.60%
8:30	GBP	U.K. RPI M/M Jun		0.50%	0.50%
8:30	GBP	U.K. RPI Y/Y Jun		4.30%	4.30%
8:30	GBP	U.K. RPI - X M/M Jun		0.40%	0.70%
8:30	GBP	U.K. RPI - X Y/Y Jun		4.40%	4.40%
9:00	EUR	Germany ZEW Economic Sentiment Jul		-55	-52.4
9:00	EUR	Eurozone ZEW Economic Sentiment Jul		-56	-52.7
12:30	USD	U.S. Empire state mfg Jul		-8	-8.68
12:30	USD	U.S. PPI M/M Jun		1.30%	1.40%
12:30	USD	U.S. PPI Y/Y Jun		8.50%	7.20%
12:30	USD	U.S. PPI core M/M Jun		0.30%	0.20%
12:30	USD	U.S. PPI core Y/Y Jun		3.20%	3.00%
12:30	USD	U.S. Retail sales M/M Jun		0.50%	0.50%
12:30	USD	U.S. Retail sales less auto M/M Jun		1.00%	1.20%
13:00	CAD	BOC rate decision Jul		3.00%	3.00%
14:00	USD	U.S. Business inventories May		0.50%	0.50%
14:00	USD	Fed Bernanke Semi-annual Monetary Policy Testimony at Senate