Dollar extended weakness
Dollar only managed a brief recovery yesterday, despite having strong data and Treasury Paulson’s support on a strong dollar policy. Dollar fell sharply across the board in mid US session. Some quoted increasing middle tension and rising oil price as the cause for dollar weakness but we doubt so. On the other hand, it seems like market is expecting the Fed to pause no matter what data we’re getting this week. And good data from US could continue be used as an excuse to push dollar up to kill stops only. Traders should be cautious, at least until the next Fed meeting.
BoJ policy board member Atsushi Mizuno said that he’s concerned the Bank of Japan’s message of adjusting interest-rate levels gradually would be interpreted in the wrong way and lead to the conclusion that there would be no additional rate increases this year. In other words, BoJ may have another hike this year. USD/JPY continues to edge lower today but yen’s strength is actually not that apparent, at least, not against Euro. Australia’s central bank raised its benchmark interest rate to 6 percent, a 5 1/2-year high, and stoked expectations of another increase by saying inflation will exceed its forecasts.
RBA has raised overnight cash rate by 25bp to 6% today as inflation, at 4% in 2Q, is above the bank’s target of 2-3%. Retails sales increased 1% in June rebounding from May’s 0.3% drop and above expectation of 0.5% rise. Continuous strong retail sales and inflation could increase the chance of at least another hike later this year.
GBP/USD
Daily Pivots: (S1) 1.8671; (P) 1.8717; (R1) 1.8807;
More
Cable’s retreat from 1.8687 was contained by mentioned support of 1.8614 and rally resumed by breaking above 1.8687 high, reaching as high as 1.8786 so far. At this point, as long as cable stays above 1.8687 support turned resistance, further rally is expected to follow towards 100% projection of 1.8174 to 1.8597 from 1.8383 at 1.8806, and probably a test of 1.8877 resistance.
In a bigger picture, with weekly MACD staying below signal line, we’re slightly favoring the case that corrective fall from 1.9024 is merely part of a larger consolidation to the whole rise from 1.7047 and therefore, a firm break above a firm break above 1.9024 is needed to confirm medium term rise from 1.7047 has resumed bring further rise towards 1.9554 high before completing the whole rise from 1.7047. Otherwise, more choppy consolidation is still likely to follow.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui (Shing) is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.