Dollar falls sharply as PPI inflation slows
Dollar falls sharply in US session after weaker than expected PPI inflation data and Empire State Index. Better than expected TIC capital flow is not providing any support to the dollar. US Jul PPI increase 0.1% mom and 4.2% yoy, slowed from previous month’s 0.5% mom and 4.9% yoy increase, below expectation of 0.4% mom, 4.5%. Core PPI even dropped 0.3% mom in Jul versus expectation of staying steady at 0.2%. Yoy increase in core PPI is also below exp and increased 1.3% only. This is inline with Fed’s forecasts that moderation in growth by past monetary policy will slow inflation. Further evidence will be provided tomorrow by CPI inflation data.
Empire State index dropped more than expected to 10.34 in Aug from upwardly revised 16.58, below expectation of 14.8. Capital net flow increased more than expected to $75.1b in June, much higher than expectation. U.K. and China increased their holdings of Treasury securities but Japan, being the world’s largest holder of US treasuries, has reduced holdings. But in general, dollar’s fall quickly resumes after TICS.
Earlier today, UK CPI came in lower than expectation. Jul CPI dropped 0.1% versus expectation of staying steady but yoy increase meets expectation of 2.4% increase.
USD/JPY
Daily Pivots: (S1) 116.32; (P) 116.53; (R1) 116.90;
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USD/JPY’s fall from 1.116.74 continues and accelerated in US session by breaking below 116.15 minor support, indicating a short term top has formed at 116.74 already and further pull back towards 115.73 support should follow. But still, as long as downside is contained above 115.12, further rally is still in favor after the correction. Firm break above 116.74 again will indicate rise 113.96 has resumed for 117.39 resistance.
In a bigger picture, the whole rally from 108.99 has completed with a medium term top formed at 117.87 already with bearish divergence condition in daily MACD and RSI and medium term rising trend line firmly broken. However, USD/JPY will be treated as in larger sideway consolidation only as long as it’s kept above 113.39 cluster support and further rally is still in favor, only happens later, towards 118.88 resistance. Break of 117.39 resistance will be the first signal of medium term rally resumption.
But, below 115.12 support will turn focus back to 113.39 cluster support and firm break below 113.39 will start to argue that the whole decline from 121.38 (which made a low with three waves down to 108.99) has resumed and medium term outlook will be turned bearish for a test of 111.31 low first and possibly 108.99 later.
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Shing-Ip Tsui is the founder and CEO of
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