Mid-Day Report: Dollar Lifted by Hawkish Plosser, Rebound to Resume?

Market Overview | Written by ActionForex.com | Jul 22 08 13:01 GMT |

Dollar is talked up by Fed Plosser's hawkish comments in early US session. Plosser argues that monetary policy makers will have to "back up their words with actions" to keep inflation expectations anchored. Fed will need to "reverse course" and Plosser anticipate the reversal to be started "sooner rather than later". Treasury Paulson said he remained confident that Congress will pass GSE legislation this week and Fannie Mae and Freddie Mac are important to the US financial system. Paulson also reiterated that a strong dollar policy is of interest to the US. Technically speaking, The recovery is EUR/USD, GBP/USD and AUD/USD is still limited by respective intraday resistance and thus, there is not confirmation of completion of the pull back yet. On the other hand, the mild strength in dollar could indeed be the start of another leg up in the greenback to complete the corrective rebound. Some more strength in the dollar is likely for the rest of the day. Canadian dollar is also mildly lower against dollar after May retail sales report missed expectation. Headline sales grew 0.4% versus consensus of 0.6% while ex-auto sales grew 0.4% versus expectation of 0.8%. We're still treating the fall of USD/CAD from 1.0322 as a correction with USD/CAD close to key near term support at 0.9957, we're expecting such correction to end soon. Though a break above 1.0081 resistance is needed to be the first signal. Markets will look into tomorrow's CPI report from Canada for direction. The Japanese yen, on the other hand, remains bounded in tight range today. US stock markets set to open lower following dismal quarterly report from Wachovia and will probably keep the yen in range. Other data released today saw Swiss trade surplus jumped to 2.41B in Jun. Japan all industry index climbed 0.4% in May, inline with expectation. USD/CAD Mid-Day Outlook Daily Pivots: (S1) 0.9972; (P) 1.0020; (R1) 1.0045; More. USD/CAD continues to stay in established range today and outlook remains neutral so far. With 0.9957 support zone (100% projection of 1.0322 to 1.0048 from 1.0230 at 0.9964) still holds, price actions from 1.0322 is still treated as correction to rally from 0.9818 only. Break above 1.0081 will be the first signal that such correction has completed and encourage stronger rally towards 1.0230 resistance first. Break of 1.0230 resistance will confirm that such correction from 1.0322 has completed and bring strong rise to retest this high. On the downside, though, below 0.9957 will dampen this view and encourage deeper fall towards 0.9823 low. In the bigger picture, after all, USD/CAD is still staying in established range of 0.9709 and 1.0378. The corrective nature of the price actions inside this range argues that it's merely consolidation to the whole rebound from 0.9056. While further choppy sideway trading could still be seen, the rise from 0.9056 is still expected to extend further as long as 0.9709 support holds. Break of 1.0378 will bring rise to 61.8% projection of 0.9056 to 1.0378 from 0.9709 at 1.0526 and above. Though, break of 0.9709 support will indicate that the correction from 0.9056 could have completed and short term bias will then be turned back to the downside for retesting this low.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:50	JPY	Japan All industry index May	0.40%	0.40%	0.80%
06:15	CHF	Swiss Trade balance (chf) Jun	2.41B	1.60B	1.87B
12:10	USD	U.S. Treasury's Paulson speaks
12:30	CAD	Canada Retail sales M/M May	0.40%	0.60%	0.60%
12:30	CAD	ex. Autos May	0.40%	0.80%	1.10%	1.20%
14:00	USD	U.S. House Price index M/M May		-0.50%	-0.80%