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Mid−Day Forex Technical Report − Dollar Remains Firm after Strong Inflation and Weak Housing

Tue, Aug 19 2008, 12:58 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Dollar Remains Firm after Strong Inflation and Weak Housing

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."

More Technical Analysis Reports Here

USD/CHF Daily 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.

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Published on  Tue, Aug 19 2008, 13:04 GMT