Mid-Day Report: Dollar Remains Firm after Strong Inflation and Weak Housing

Market Overview | Written by ActionForex.com | Aug 19 08 12:59 GMT |

Dollar remains firm in early US session after mixed data which continues to show deepening recession in the housing markets and skyrocketing inflation. Housing starts dropped -11.0% to 0.96M annualized rate in Jul, inline with expectation. Meanwhile,building permits dropped much more than expected by -17.7% to 0.94M annualized rate. The data argues that surprised rebound in Jun was just a false dawn. Headline PPI growth doubled markets forecasts by 1.2% mom in Jul, pushing yoy rate to 27 years high of 9.8% yoy in Jul. Core PPI jumped 0.7% mom versus expectation of 0.2%, pushing yoy rate much more than expected to 3.5%. After all, the outlook in the forex markets remains unchanged. Dollar's intraday upside momentum is seen diminishing but there is still no clear sign of a short term top against Euro, Sterling and Swissy yet. USD/CAD, USD/JPY and AUD/USD might consolidate further but once they prior trend resumes, more greenback buying could be triggered elsewhere. Also, development in yen crosses will be closely watched and the crosses is possibly set for down trend resumption. Euro remains pressured after mixed ZEW report today. The economic sentiment in Germany in Eurozone did surprised the markets on the upside by improving much more than expected to -55.5 and -55.7 in Aug respectively. However, the positive effect was undone by sharp deterioration in the current situation indicator, from 17 to -9.2 in Germany and -3.3 to -22.2 in Eurozone. BoJ left target overnight call rate unchanged at 0.5% as widely expected. The statement indicated that the bank had little option other than being on hold. CPI inflation is expected to be "somewhat higher" over the coming months while economic activity has slowed sharply. RBA minutes echoed prior communications and reaffirmed the bank's easing bias. The minutes said that "less restrictive monetary conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase." USD/CHF Mid-Day Outlook Daily Pivots: (S1) 1.0922; (P) 1.0962; (R1) 1.1014; More USD/CHF continues to press mentioned 1.0999/1028 region today. Outlook remains unchanged. Bearish divergence condition in 4 hours MACD and RSI argues that a short term top around the corner, if not already in place. Break of 1.0911 minor support will confirm and bring deeper pull back to 1.0632 resistance turned support. But downside should be contained above 1.0403 support and bring rally resumption. However, note that before breaking of 1.0832 minor support, there is no confirmation of a short term top yet. Further rally cannot be ruled out and sustained trading above 1.0999/1028 will pave the way for next key medium term resistance at 1.1596. In the bigger picture, the case that whole medium term down trend from 1.3283 has completed continues to build up with weekly MACD and RSI breaking their own down trend. Nevertheless, focus remains on the mentioned cluster resistance at 1.0999/1028 (100% projection of 0.9634 to 1.0623 from 1.0010 at 1.0999, 38.2% retracement of 1.3283 to 0.9634 at 1.1028). Sustained break of this resistance zone will indicate that whole rise from 0.9634 is possibly impulsive in nature and should target next cluster resistance at 1.1596 (161.8% projection of 0.9634 to 1.0623 from 1.0010 at 1.1610). On the downside, a break below 1.0010 support is still needed to confirm rise from 0.9634 has finished. Otherwise, further rally is still in favor after pullback.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
01:30	AUD	RBA Minutes Aug
03:30	JPY	BoJ Rate Decision	0.50%	0.50%	0.50%
06:00	EUR	Germany PPI M/M Jul	2.00%	0.70%	0.90%
06:00	EUR	Germany PPI Y/Y Jul	8.90%	7.60%	6.70%
09:00	EUR	German ZEW Econ. Sent. Aug	-55.5	-62	-63.9
09:00	EUR	Eurozone ZEW Econ. Sent. Aug	-55.7	-65	-63.7
12:30	USD	U.S. Building permits M/M Jul	-17.70%	N/A	16.40%
12:30	USD	U.S. Building permits Jul	0.94M	0.98M	1.14M
12:30	USD	U.S. Housing starts M/M Jul	-11.00%	N/A	9.10%	10.40%
12:30	USD	U.S. Housing starts Jul	0.96M	0.96M	1.07M	1.08M
12:30	USD	U.S. PPI M/M Jul	1.20%	0.60%	1.80%
12:30	USD	U.S. PPI Y/Y Jul	9.80%	9.40%	9.20%
12:30	USD	U.S. PPI core M/M Jul	0.70%	0.20%	0.20%
12:30	USD	U.S. PPI core Y/Y Jul	3.50%	3.20%	3.00%
12:30	CAD	Canada Wholesale sales M/M Jun	2.00%	0.70%	1.60%	1.50%