Dollar Mixed After Housing Data, Euro Lower on Disappointing ZEW

Dollar is mixed after housing data today shows building permits rebounded strongly by 3.0% to 1.50M annualized rate in May, beating expectation of 1.47M. Housing starts is a touch lower at 1.47M versus consensus of 1.48M. however, both prior month’s data were revised lower. After all, today’s data offers no clear indication on where the housing market is heading to but at least, it relieved some concerns on steeper slowdown after yesterday’s weaker than expected NABH house builder sentiments.

On the other hand, Euro was sent lower across the board after the ZEW Index of Economic Sentiment for Germany unexpectedly fell from 24.0 to 20.3 in Jun, much weaker than expectation of a rise to 29.0. Market’s focus is shifting to Friday’s Ifo index.

Canada’s headline CPI came in as expected for May up 2.2% yoy even though the mom rate is a touch below expectation of 0.5%. Core CPI is up 0.3% mom, 2.2% yoy with the yoy rate also lower than expectation of 2.3%. Markets seem to be unbothered by the tamer than expected core CPI and continues to focus on USD/CAD selling.


Daily Pivots: (S1) 1.3386; (P) 1.3401; (R1) 1.3428; More

EUR/USD’s rebound is limited at 1.3436, slightly below mentioned 61.8% retracement of 3553 to 1.3262 at 1.3442. Subsequent retreat and break of 1.3393 minor support suggest that an intraday top is formed at 1.3436 and bias is turned to the downside. As discussed before, overall short term outlook remains bearish as fall from 1.3601 is still expected to extend further. But break of 1.3329 support is needed to confirm rebound from 1.3262 has completed and bring retest of this lower. Otherwise, further consolidation from 1.3262 could still continue and another rise cannot be ruled out before completion.

In the bigger picture, the rise from 1.2865 ended at 1.3681 already after prior breaking of 1.3364 cluster support (38.2% retracement of 1.2865 to 1.3681 at 1.3369). With bearish divergence condition in daily MACD and RSI, it’s likely that the rally from 1.2483 has ended too. As discussed before, whole medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483, which is trended as resumption of up trend from 1.1639, is expected to terminate between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. With EUR/USD has already touched this resistance zone back in April, it’s also likely that the whole up trend from 1.1639 has completed at 1.3681 too.

Hence, short term outlook will remain bearish as long as 1.3553 resistance holds, which indicates fall from 1.3681 is still in progress. Focus will be on medium term rising channel support (now at 1.3097) and next key cluster support at 1.3070 (50% retracement of 1.2483 to 1.3681 at 1.3082 and 161.8% projection of 1.3681 to 1.3391 from 1.3553 at 1.3084, 55 weeks EMA at 1.3063). Sustained break of this support zone will confirm that whole up trend from 1.1639 has ended and turn medium term outlook bearish.

But before the confirmation, rise from 1.1639 could still be in force with EUR/USD staying in the medium term rising channel. Strong rebound to above 1.3553 resistance will indicate fall from 1.3681 has completed and is merely a correction in the medium term up trend only considering that it just met 100% projection of 1.3681 to 1.3391 from 1.3553 at 1.3263. A retest of 1.3681 would be seen and the rebound could extend further towards 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. But focus will remain on reversal signal as even in such case, the up trend from 1.1639 is still expected to conclude between 1.3668 and 1.3822.

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Shing-Ip Tsui is the founder and CEO of 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.