Mid-Day Report: Dollar Gives Back Some Gains after ISM

Market Overview | Written by ActionForex.com | Sep 02 08 14:36 GMT |

Dollar extended rally throughout the dollar following sharp decline in oil price but gives back some gains after ISM manufacturing report. ISM manufacturing index dropped slightly from 50.0 to 49.9 in Aug. More importantly, price paid component dropped sharply to 77.0, lowest level since Feb. Employment component also dropped back into contraction region at 49.7. Construction spending dropped -0.6% in Jul, worse than expectation of -0.4%.

Other data released today saw UK PMI construction unexpectedly rebounded to 40.5 in Aug, but still remain deep in contraction region below 50. Eurozone PPI rose 1.1% mom, 9.0% yoy in Jul, below expectation of 1.3% mom, 9.1% yoy. Swiss CPI dropped -0.3% mom in Aug, with yoy rate moderated from 3.1% to 2.9%. Q2 GDP growth came in at 0.4% qoq, 2.3% yoy.

UK Prime Minister Gordon Brown proposed spending 1 billion pounds to help the housing market to reverse the worse recession in at least 18 years, including suspending tax on UK houses cost less that 175,000 pounds, and exempting stamp duty for a year.

RBA cut rates for the first time in seven years as widely expected. The overnight cash rate is lowered by 25bps to 7.00%. The statement is somewhat less dovish than expected and suggests that the next policy move will be data dependent. The statement said that the Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time."
USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.0621; (P) 1.0656; (R1) 1.0702; More.

USD/CAD rises to as high as 1.0747 today following broad based strength in the greenback. Some retreat is seen in early US session but intraday bias remains on the upside as long as 1.0612 minor support holds. Further rally is expected to be seen to 1.0791/98 cluster resistance. On the downside, below 1.0612 minor support will turn intraday outlook neutral first. But pull back should be contained above 1.0471 support and bring another rise. However, break of 1.0471 will indicate that a short term top is in place and bring deeper decline towards 0.9974 support.

In the bigger picture, medium term rise from 0.9056 is still in progress towards mentioned cluster resistance at 1.0791/98 (61.8% retracement of 1.1874 to 0.9056 at 1.0798, 61.8% projection of 0.9056 to 1.0378 from 0.9974 at 1.0791) first. Sustained break of 1.0791/98 will argue that rise from 0.9056 is probably more than just a correction in the long term down trend and will set the stage to test key long term resistance at 1.1874. On the downside, a break below 0.9974 support is needed to confirm that rise from 0.9056 has completed. Otherwise, further rally is still expected even in case of a deep pull back.

Economic Indicators Update
GMT  Ccy  Events  Actual  Consensus  Previous  Revised
04:30  AUD  RBA rate decision  7.00%  7.00%  7.25%  
05:45  CHF  Swiss CPI M/M Aug  -0.30%  -0.10%  -0.40%  
05:45  CHF  Swiss CPI Y/Y Aug  2.90%  3.10%  3.10%  
05:45  CHF  Swiss GDP Q/Q Q2  0.40%  0.20%  0.30%  
05:45  CHF  Swiss GDP Y/Y Q2  2.30%  2.40%  3.00%  
08:30  GBP  U.K. PMI construction Aug  40.5  36  36.7  
09:00  EUR  Eurozone PPI M/M Jul  1.10%  1.30%  0.90%  
09:00  EUR  Eurozone PPI Y/Y Jul  9.00%  9.10%  8.00%  
14:00  USD  U.S. ISM manufacturing Aug  49.9  49.9  50  
14:00  USD  U.S. ISM manufacturing Prices Aug  77  82  88.5  
14:00  USD  U.S. Construction spending Jul  -0.60%  -0.40%  -0.40%