Market Overview | Written by ActionForex.com | Jul 15 08 13:03 GMT |
Dollar remains pressured in early US session after a mixed bag of economic data. headline PPI surged much more than expected from 7.2% yoy to 9.2% yoy versus consensus of 8.5% while core PPI was unchanged at 3.0% versus expectation of 3.2%. Retail sales is a disappointment with headline sale growing a mere 0.1% comparing to expectation of 0.5% in Jun. Ex-auto sales rose 0.8% mom, also missed expectation of 1.0%. Though, Empire state manufacturing index is considerably better than expectation and improved to -4.9 in Jul even though it's still negative. The focus in early US session on in the Japanese yen which maintains it's strong momentum today on risk aversion as US stock markets are set to gap lower, following sharp fall in Asian and European markets.
Dollar seems stabilized a bit against Euro, Sterling and Aussie after the sharp sell off earlier today which pushed it to new record low against Euro at 1.6038 and new 25 year low against Aussie at 0.9839. However, the main even risks is on Bernanke's semiannual testimony on monetary policy and the economy before the Senate Banking Committee later in the US morning. markets could hold their breath before Bernanke but it's doubtful if Bernanke still has any more bullets to boost the confidence on dollar. Markets are ready to punish the greenback further if Bernanke doesn't offer anything inspiring.
BoC left rates unchanged at 3.00% as widely expected.
German ZEW economic sentiments deteriorated much more than expected from -52.4 to lowest readings in 16 years at -63.9 in Jul versus expectation of a modest fall to -55. Current situation gauge also dropped sharply by -20.6 points from 37.6 to 17. Eurozone ZEW economic sentiment also dropped sharply from -52.7 to -63.7 with current situation indicator turned negative from 7.9 to -3.3. Surging energy and food driven inflation and high interests rates are dragging down the Eurozone economy. ZEW respondents expect inflation to persist, and that short-term and long-term interest rates will rise.
UK headline CPI surged from 3.3% yoy to 3.8% yoy in Jun, even stronger than expectation of 3.6%, far above BoE's target of 2-3%. Core CPI was up from 1.5% yoy to 1.6%. BoE Governor Mervyn King will have to write another letter of explanation to the government outlining how the bank plans to bring price growth back to target. RPI was also uncomfortably high at 4.6% yoy with RPI-X at 4.8% yoy. The ever rising inflation ties up BoE's hands for any move in policy even though risk of recession continues to rise. Also released from UK today, BRC retail sales dropped -0.4% in Jun. RICS house price balance showed 88% of respondents saw housing declines in June.
As mentioned before both Euro and Sterling are firm in today's European session against dollar but volatility is seen in EUR/GBP cross which spikes to as low as 0.7933
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. The yen is boosted by risk aversion on sharp decline in Asian and European stock markets.
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. Aussie remains strong, making new 25 year high against dollar at 0.9839.
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.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5842; (P) 1.5906; (R1) 1.5970; More
EUR/USD surges to new record high of today and remains firm in early US session. Outlook remains unchanged. Further rally is still expected as long as 1.5841 support holds. Sustained trading above 1.6000/19 resistance zone will confirm that the medium term up trend has resumed and will target 100% projection of 1.5302 to 1.5908 from 1.5611 at 1.6217 first. On the downside, below 1.5841 will turn intraday outlook neutral first and bring consolidation. But further rally is still expected as long as 1.5611 support holds.
In the bigger picture, medium term consolidation from 1.6019 should have completed at 1.5302 already. Decisive break of 1.6019 record high will confirm that medium term up trend has resumed and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. Also, rise from 1.1639 is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high) and could still extend to 100% projection of 0.8223 to 1.3668 from 1.1639 at 1.7084. On the downside, beak of 1.5611 is needed to be the signal that a short term top is formed. Otherwise, further rally is still expected even in case of deep pull back.
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 | -88% | -94.00% | -92.90% | |
| 23:01 | GBP | U.K. BRC retail sales Jun | -0.40% | N/A | 1.90% | |
| 01:30 | AUD | RBA Board Meeting Minutes | ||||
| 04:30 | JPY | BOJ rate decision Jul | 0.50% | 0.50% | 0.50% | |
| 06:00 | JPY | BOJ Monthly report | ||||
| 08:30 | GBP | U.K. CPI M/M Jun | 0.70% | 0.40% | 0.50% | |
| 08:30 | GBP | U.K. CPI Y/Y Jun | 3.80% | 3.60% | 3.30% | |
| 08:30 | GBP | U.K. RPI M/M Jun | 0.80% | 0.50% | 0.50% | |
| 08:30 | GBP | U.K. RPI Y/Y Jun | 4.60% | 4.30% | 4.30% | |
| 08:30 | GBP | U.K. RPI - X M/M Jun | 0.80% | 0.40% | 0.70% | |
| 08:30 | GBP | U.K. RPI - X Y/Y Jun | 4.80% | 4.40% | 4.40% | |
| 09:00 | EUR | Germany ZEW Economic Sentiment Jul | -63.7 | -55 | -52.4 | |
| 09:00 | EUR | Eurozone ZEW Economic Sentiment Jul | -63.9 | -56 | -52.7 | |
| 12:30 | USD | U.S. Empire state mfg Jul | -4.9 | -8 | -8.68 | |
| 12:30 | USD | U.S. PPI M/M Jun | 1.80% | 1.30% | 1.40% | |
| 12:30 | USD | U.S. PPI Y/Y Jun | 9.20% | 8.50% | 7.20% | |
| 12:30 | USD | U.S. PPI core M/M Jun | 0.20% | 0.30% | 0.20% | |
| 12:30 | USD | U.S. PPI core Y/Y Jun | 3.00% | 3.20% | 3.00% | |
| 12:30 | USD | U.S. Retail sales M/M Jun | 0.10% | 0.50% | 0.50% | 0.80% |
| 12:30 | USD | U.S. Retail sales less auto M/MJun | 0.80% | 1.00% | 1.20% | |
| 13:00 | CAD | BOC rate decision Jul | 3.00% | 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 |
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