Mid-Day Report: Dollar Weakens as Consolidation Continues, FOMC Minutes Next

Market Overview | Written by ActionForex.com | Nov 19 08 14:42 GMT |

Dollar is sharply lower against European majors in early US session as consolidation continues. Technically speaking, as discussed in our technical outlook reports, more upside is still expected in EUR/USD and GBP/USD. Meanwhile, USD/CHF retreats sharply after edging higher to 1.2082 earlier today. Dollar index's dip below 4 hours 55 EMA argues that some more pull back should be seen before resuming recent rally. Elsewhere, Crude oil, rides on dollar's retreat and rebounds strongly from intraday low of 53.66 to above 55.6. Focus will now turn to FOMC minutes for inspirations on further volatility. Though, ,markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook. US CPI plunged 1% mom in Oct, worse than expectation of -0.38, and was the largest monthly decline since records began in 1947. Annual rate slowed sharply from 4.9% to 3.7% versus expectation of 4.0%. Core CPI also dropped -0.1% mom in Oct, first monthly decline since 1982. Annual rate slowed from 2.4% to 2.2%. New residential construction data showed housing market recession is still in progress. Housing starts fell 4.5% to 791k annual rate in Oct, lowest since records began in 1959. Building permits dropped -12% to 708k, lowest since at least 1960. BoE MPC minutes revealed that the board members voted unanimously by 9-0 to cut the Bank Rate by 150bps on Nov 6, to the lowest level since 1955 at 3.00%. The minutes noted that upside risks to inflation came down recently but downside risks to growth increased. The committee judged that "immediate reduction" of 150bps was "necessary to meet the 2% inflation target in medium term even though a bigger reduction of 200bps was considered. The committee would like to wait for the details of the fiscal stimulus package and effect of financial institutions rescue plan before acting further. Sterling strengthens mildly after the minutes by remains bounded in tight range. Also released today, CBI manufacturing orders index improved mildly from -39 to -38 in Nov. EUR/USD Mid-Day Outlook Daily Pivots: (S1) 1.2555; (P) 1.2628; (R1) 1.2689; More EUR/USD's strong rally in early US session suggests that rebound from 1.2389 is resuming. At this point, intraday bias is mildly on the upside as long as 1.2585 minor support holds. Further rise is in favor to 1.3290 high and 100% projection of 1.2329 to 1.3290 from 1.2389 at 1.3350 to complete the consolidation from 1.2329. Nevertheless, upside is expected be limited below 1.3768 cluster resistance and bring down trend resumption. On the downside, below 1.2585 will flip intraday bias back to the downside and break of 1.2389 will be an important indication that consolidation from 1.2329 has completed and recent down trend has resumed for next target of 50% retracement of 0.8223 to 1.6038 at 1.2131 In the bigger picture, as discussed before, the strength of the fall from 1.6038 reinforces the case that whole decline from 1.6038 is developing into a five wave impulsive fall. The completed decline from 1.4867 to 1.2329 might represent the third wave decline in the five wave sequence. Consolidation from 1.2329 might represent the fourth wave consolidation. Hence, another decline is still expected before making a medium term bottom. Below 1.2329 will target next long term fibonacci level of 50% retracement of 0.8223 to 1.6038 at 1.2131 or even further to 1.1639 key medium term support. On the upside, sustained break of 1.3768 cluster resistance (38.2% retracement of 1.6038 to 1.2329 at 1.3746) is needed to invalidate this view and indicate that whole decline from 1.6038 has made a medium term bottom.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:30	AUD	Australia Westpac leading economic indexSep	-1.00%	N/A	-0.10%
23:50	JPY	Japan All industry index Sep	-0.10%	-0.10%	-1.80%	-1.70%
09:30	GBP	BOE MPC vote outcome (C-U)	9--0	9--0	9--0
11:00	GBP	U.K. CBI industrial trend Nov	-38	-41	-39
13:30	USD	U.S. Building permits Oct	0.71M	0.78M	0.81M
13:30	USD	U.S. Building permits M/M Oct	-12%	N/A	-6.10%
13:30	USD	U.S. Housing starts Oct	0.79M	0.78M	0.82M
13:30	USD	U.S. Housing starts M/M Oct	-4.50%	N/A	-6.30%
13:30	USD	U.S. CPI M/M Oct	-1.00%	-0.80%	0.00%
13:30	USD	U.S. CPI Y/Y Oct	3.70%	4.00%	4.90%
13:30	USD	U.S. CPI core M/M Oct	-0.10%	0.20%	0.10%
13:30	USD	U.S. CPI core Y/Y Oct	2.20%	2.40%	2.50%
13:30	USD	U.S. Real earnings Oct	1.40%	0.50%	0.00%
13:30	CAD	Canada Leading indicators Oct	-0.40%	-0.30%	-0.20%
15:35	USD	Crude Oil Inventories		0.9M	0.0M
19:00	USD	FOMC minutes