Mid-Day Report: Yen Lower after Strong US Durables, Dollar Pressured by Oil

Market Overview | Written by ActionForex.com | Aug 27 08 13:14 GMT |

The Japanese yen spikes lower in early US session on anticipation of a strong open in US stock markets after durable goods orders beat expectation. However, the greenback continues to be soft, pressured by rebound in oil prices. Headline durables jumped 1.3% in Jul versus consensus of 0%. This is the third consecutive months of expansion. Ex-transport orders rose 0.7% versus consensus of -0.5% fall. Ex-defense orders also rose 2.8% versus expectation of 0.2%. The data argues that business spending and confidence are continuing to recover in the US.

Dollar continues to retreat against majors after hitting key levels against Aussie and Sterling and struggling against Swissy around 1.1. Oil continues to rebound further to as high as 118.53 on concern of disruption of operations in Gulf of Mexico by Tropical Storm Gustav. The direction in the greenback will like continue to be dominated by oil prices. DOE crude inventories will also be watched later today.

Euro is supported by comments from ECB Weber and recovers against dollar and yen. Weber said that the discussion about declining rates in Europe is "premature" and "If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary."
USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.17; (P) 109.56; (R1) 109.98; More.

USD/JPY's retreat was contained at 108.70 and recovers in early US session. The three wave structure of the fall from 110.27 to 108.70 suggests that it's merely a correction to rise rom 108.13. Though, outlook remains neutral for the moment. Break of 109.92 minor resistance will add more credence to this case and encourage stronger rise to 110.66. Break will confirm that recent rally has resumed for next target of 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68.

On the downside, firstly, below 108.70 will dampen this above case and bring deeper fall to 108.13 low. Also, note, though earlier, that the possibility of a short term head and shoulder top (110.4 110.66, 110.27). Break of 108.13 will indicate recent up trend has possibly reversed and and much deeper decline should the be seen to test medium term rising trendline support (now at 106.49).

In the bigger picture, USD/JPY has made a medium term bottom after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Rebound from 95.77 is still in progress and should be targeting 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68 first. Break will bring further rise to 61.8% retracement of 124.13 to 95.77 at 113.30.

However, considering bearish divergence condition in daily MACD, break of 106.04 support and sustained trading below the trend line support (99.57, 103.75, now at 106.47) will argue that whole medium term rebound from 95.77 has completed. Focus will then be turned back to 103.76 support and break will confirm this case and turn outlook bearish again.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
06:00	EUR	Germany Import price index M/M Jul	0.60%	0.50%	1.50%
06:00	EUR	Germany Import price index Y/Y Jul	9.30%	9.30%	8.90%
12:30	USD	U.S. Durable goods Jul	1.20%	0.00%	0.80%	1.30%
12:30	USD	ex. Transport Jul	0.70%	-0.50%	2.00%	2.40%
12:30	USD	ex. Defense Jul	2.80%	0.20%	0.00%	0.60%
	EUR	Germany CPI prelim M/M Aug		-0.20%	0.60%
	EUR	Germany CPI prelim Y/Y Aug		3.20%	3.30%
	EUR	Germany HICP prelim M/M Aug		-0.20%	0.70%
	EUR	Germany HICP prelim Y/Y Aug		3.40%	3.50%