Dollar Boosted By Solid Core CPI And Housing Starts
Dollar fights back in early US session after solid core CPI inflation and upside surprise in housing starts.
Core CPI increased 0.2%mom, 2.9% yoy meeting market expectation. The 2.9% yoy rise is indeed the highest since 1996. Though, headline CPI came is weaker than expected, dropping 0.5%, below expectation of 0.3% mom fall, fastest decline since Nov 05. Annual increase of headline CPI is at 2.1%, slightly below expectation of 2.2%. After all, the outlook didn’t change, there is still little room for a rate cut early next year based on strong core inflation.
Housing starts was the biggest surprise today, rising to 1.77M annual rate in Sep versus expectation of 1.64m. Prior data was also revised up to 1.674m. This could be a sign that slowdown in housing market is nearing a bottom. But build permits is telling another story by dropping more than expected to 1.62m annualized rate.
Earlier today, BoE minutes revealed that the decision to keep rate unchanged at 4.75% was by a 7-2 vote instead of market expectation of a 9-0 vote. Andrew Sentance and Timothy Besley voted for a quarter point increase in the key rate to 5 percent. This is further supporting expectation of another hike in November. However, this piece new was countered by surprise rise in Claimant count. Sterling was basically flat in European session.
Daily Pivots: (S1) 1.2641; (P) 1.2676; (R1) 1.2713; More.
USD/CHF’s retreat from 1.2768 was contained at 1.2637, supported by 4 hours 55 EMA and inner rising channel (now at 1.2658). Subsequent rebound in US session has pushed USD/CHF above 1.2709 minor resistance, indicating retreat has completed. At this point, further rise should be seen to retest 1.2768 high. But firm break above 1.2768 (61.8% retracement of 1.3283 to 1.1919 at 1.2762) is needed to confirm recent rally has resumed for 78.6% retracement of 1.3283 to 1.1919 at 1.2991. Otherwise consolidation is still in progress and risk of another fall remains.
On the downside, below 1.2637 again will indicate USD/CHF is still bounded in consolidation. However, another rally is still in favor as long as downside of the current pullback is contained by 1.2566 resistance turned support.
In the bigger picture, firm break above 1.2594/20 cluster resistance (50% retracement of 1.3283 to 1.1919 at 1.2601) eliminates immediate medium term bearishness and indicates a stronger medium term rise is underway. Sustained trading above 1.2762 will bring further rise towards 78.6% retracement at 1.2991.
On the downside, below 1.2566 support will be the first signal that whole rise from 1.2291 has completed after meeting 61.8% retracement of 1.3283 to 1.1919 at 1.2762. And firm break below 1.2404 will confirm this case and switch focus back to lower medium term channel line (now at 1.2335). However, it will take a firm break below this medium term rising channel to indicate the rebound from 1.1919 has completed. Otherwise, further rally is still in favor even in case of a correction.
Shing-Ip Tsui is the founder and CEO of
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