Dollar surges on narrower than expected trade deficit
Dollar surges higher in US session after narrower than expected trade deficit which shrank over 6% to $64.3b in Sep, from a downwardly revised $68.9b, the biggest drop in trade deficit in almost 2 years. On the one hand, exports rose 0.5% to a record of $123.2b. On the other hand, imports fell 2.1% in Sept to $187.5b, with crude oil imports fell to $22.7b as the average price per barrel declined to $62.52 from $66.12.
Also released today, Export price dropped 0.4% mom, import price dropped 2% in Oct, dropping faster than expected. U of Michigan consumer sentiments and wholesale inventory will be next.
Earlier today, Euro was boosted by hawkish comments from ECB officials. ECB President Jean-Claude Trichet wrote in the Financial Times today about the need to address money-supply growth. Also, Executive Board member Lorenzo Bini Smaghi said Europe’s economic recovery is proceeding at a faster pace than foreseen. The current interest rates of 3.25 percent might be inadequate. These are reiterating the speculation that ECB will continue the tightening cycle into 2007, after December’s expected 25bps hike. EUR/JPY pushed to new record high above 151 level.
Sterling gained no support from the expected BoE rate hike today. In the accompanying statement, BoE justified the 25bps hike to 5% saying that it’s necessary to bring CPI inflation, which was at 2.4% in September, back to its 2% target. Also, it said that margin of spare capacity within UK businesses appears limited and the UK economy has recorded its fourth consecutive quarter of firm growth. Traders has taken the statement as more on the soft side as it failed to provide sufficient reference to the rate outlook in 2007.
USD/JPY
Daily Pivots: (S1) 117.48; (P) 117.73; (R1) 118.08;
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USD/JPY’s rise from 117.23 extends today and accelerates on broad based dollar strength and yen weakness. At this point, intraday bias remains on the upside as long as USD/JPY stays above 118.06 minor support and further rise is still in favor to follow. On the downside, below 118.06 will turn intraday outlook consolidative but a break below 117.23 support is needed to turn short term outlook bearish. Otherwise, risk stays on the upside.
In the bigger picture, previous break below 117.37 is first warning that whole medium term up trend from 108.99 has completed. In other words, the break above multi-year trend line resistance (147.68 to 135.20 then to 121.38), relatively briefly in that time frame, was indeed a false break. However, this is not confirmed yet as USD/JPY still holds above 38.2% retracement of 108.99 to 119.86 at 115.71.
On the upside, above 118.65 cluster resistance (61.8% retracement of 119.86 to 116.56 at 118.60) will invalidate the above case and indicate rise from 113.39 is still in progress. Hence a retest of 119.86 high will likely follow in such case and break will encourage further rise towards 121.38 resistance (2005 high). On the downside, break of 116.56 will put focus back to 115.71 fibo support again.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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