Dollar Takes a Breath on Current Account Balance
Dollar recovers mildly against yen in early US session after better than expectation Q4 current account deficit which shrank more than expected from an upwardly revised -229b to -196b versus expectation of -204b. Meanwhile, Feb export price surged 0.7% comparing to expectation of 0.2% though import price rose moderately by 0.2% comparing to expectation of 0.8%. However, sentiments remains vulnerable and another sell off in USD/JPY and USD/CHF could be seen if stocks tumble again today. Nikkei has already given up close to 3% earlier today while DAX and FTSE 100 both dropped close to 1.7%.
Unemployment rate in UK remains at 5.5% in Jan, inline with expectation. Average earnings increased by 4.2%, slightly above consensus of 4.1% growth. Claimant count rate held steady at 2.9% in Feb by the actual number of claimants fell -3.8k. The dip fell short of expectation of -8k and was well below prior month’s revised -13.3k. After all, the data still indicates that labor market in UK remains tight. Eurozone industrial product dropped -0.2% mom in Jan, dragging yoy rate to 3.7%, below expectation of 0.4% mom, 4.2% yoy growth. Though, prior month’s growth was revised up to 1.2% mom, 4.4% yoy. Swiss ZEW index dropped from -17.3 to -28 in March.
Daily Pivots: (S1) 115.72; (P) 116.75; (R1) 117.29;
USD/JPY’s fall from 118.49 was contained at 117.75 and subsequent recovery has pushed USD/JPY above 116.38 minor resistance, indicates that an intraday low is formed and further consolidation should follow. However, as discussed before, as the correction from 115.13 should have completed with three waves up to 118.49, the fall from 118.49 should still be in force as long as upside of the current recovery is limited below 117.23 resistance and another fall should be seen after completion. Break of 115.13 will confirm that fall from 121.61 has resumed for next downside target of 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02).
Meanwhile, on the upside, above 117.23 will suggest that the fall from 118.49 has completed and that the correction from 115.13 is possibly still in progress with another rise to retest 118.49 high before completion
In the bigger picture, our view remains unchanged. Previous break of medium term rising channel support (108.99, 114.41, 117.87) indicates the whole up trend from 108.99 has completed at 122.17. Weekly MACD’s stay below signal line is still supporting this. The corrective nature of the rise from 108.99 swings favors back to the case that such medium term rally is merely part of a large scale consolidation that started at 121.38, with first leg completed at 108.99 and second leg completed at 122.17. The fall from 121.17 should then the third leg of such consolidation and deeper decline should at least be seen to below 114.02/41 support zone (61.8% retracement of 108.99 to 122.17 at 114.02) first with much possibility of further fall to retest 108.99 low.
However, a stronger rally to above 118.49 again will indicate that rebound from 115.13 is still in progress, and will probably rise further towards 61.8% retracement of 122.17 to 155.13 at 119.48. Decisive break of 119.48 fibo resistance will argue that the price actions from 122.17 is developing into large range consolidation instead. A retest of 122.17 high could be seen in such case. But still, firm break above this resistance is needed to confirm medium term rally from 108.99 has resumed. Otherwise, medium term outlook will be neutral at best.
Shing-Ip Tsui is the founder and CEO of
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