Mid-Day Report: Dollar Responds Positively to Negative Data Again

Market Overview | Written by ActionForex.com | Jan 22 09 14:13 GMT |

Dollar once again responds positively to negative data in early US session. Housing starts dropped -15.5% to new record low at 5.5m in Dec. Building permits also sank to new record low of 5.5m. Initial jobless claims surged to 16 year high of 589k, seven straight weeks above 500k mark. Dollar and yen recovers yesterday's loss on risk aversion as US stocks are set to have a lower open after yesterday's 3.5% rebound. After all, the direction in the currency markets will be heavily influenced by developments in the equity markets. Also released in US session, Canadian retail sales had their sharpest decline since 1998, dropped by -2.4% in Nov mainly due to falling gasoline prices. Ex-auto sales dropped -2.3%. Leading indicators fell -0.6% in Dec. USD/CAD was supported above 1.2529 minor intraday support and strengthens. Short term outlook in the pair remains bullish. Released earlier, UK's CBI industrial trend came in at record low of -43 in January, much lower than consensus of -39 and -35 in the previous month, indicating manufacturers anticipate severe decline in output in the coming 3 months. Eurozone's industrial orders plunged 4.5% mom in November, better than consensus of -4.8% and the revised -5.7% in October. In Switzerland, ZEW economic expectation surprisingly improved to -66.7 in January from -76.2 in the previous month, showing some effect from SNB's aggressive rate cuts over the past few months. The Bank of Japan decided to keep interest rate unchanged at 0.1% but announced it will consider buying corporate bonds with maturity up to 1 year. Moreover, the central bank revised downward economic and inflation outlook. For the year ending Mar 31 2009, GDP will contract 2% while CPI will drop 1.1%. For 2010, economic growth is expected to rise 1.5% with inflation will fall 0.4%. USD/CAD Daily Outlook Daily Pivots: (S1) 1.2474; (P) 1.2619; (R1) 1.2695; More. No change in USD/CAD's outlook. Intraday bias remains on the upside as long as 1.2529 minor support holds. Rise from 1.1761 is still expected to extend further to retest 1.3005/15 resistance zone. Though, consider mildly bearish divergence condition in 4 hours MACD and RSI, below 1.2529 will indicate that a short term top is in place and bring pull back to 1.2316 support for consolidation. In the bigger picture, there is no confirmation of completion of medium term up trend from 0.9056 yet. Such rise is expected to be developing into a five wave sequence (1.0378, 0.9823, 1.3015, ......). Consolidation from 1.3015 is treated as the fourth wave consolidation and might have completed at 1.1761 already. Decisive break of 1.3005/15 will confirm medium term up trend resumption and should then target 61.8% retracement of 1.6196 to 0.9056 at 1.3469. On the downside, below 1.2316 support will argue that consolidation from 1.3015 is extending further for another test of 1.1464 support before completion.