Dollar weakens further after CPI and housing

After quiet range trading most of the day,
dollar’s decline resumes in US session after core consumer inflation eases and housing market slows more than expected in July. Jul core CPI increase 0.2%, below expectation of 0.3% and being the smallest increase since Feb. headline CPI increases 0.4%, inline with expectation. Housing starts fell 2.5% to 1.795m, below expectation of 1.81m. Building permits also dropped sharply by 6.5% to 1.75m, much before consensus of 1.85m. Industrial production rises 0.4%. Capacity utilization stays at 82.4%.

Earlier today, BoE minutes reveals that Aug 2-3 rate setting meeting’s hike of 25bps was by a 6-1 vote, with Blancherflower as the sole member. Also the minutes said that “most members thought that increasing interest rates to 4.75 percent would most likely remove a degree of monetary accommodation, without restraining demand unduly, …… there would be time to reverse any increase should that prove necessary once the medium-term paths of demand growth and inflation became clearer.” Market has taken that as a signal that the MPC members are not convinced on a series of hikes, which has the odds for further tightening this year reduced. Sterling was under pressure after the minutes.

GBP/USD

Daily Pivots: (S1) 1.8870; (P) 1.8923; (R1) 1.8992;

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Despite initial retreat, cable’s rebound from 1.8841 resumes in US session, breaking above mentioned 1.8988 resistance and inner falling trend line. The corrective fall from 1.9142 has completed at 1.8841 already and further rebound is underway towards this resistance as long as cable stays above 1.8945 minor support. Touching of 1.8945 will turn intraday outlook consolidative first.

But still, it will take a firm break above 1.9199 fibo resistance (61.8% projection of 1.7230 to 1.9024 from 1.8090) is need to confirm rally from 1.8090 has resumed. Otherwise, further consolidation will still likely continue with risk of another fall before completion. Below 1.8854 low will indicate fall from 1.9142 has resumed for 38.2% retracement of 1.8174 to 1.9142 at 1.8914 at 1.8772

In the bigger picture, rally from 1.8090 has now pushed cable above 1.9024 cluster resistance (78.6% retracement of 1.9554 to 1.7047 at 1.9018), confirming the case that such rally should be the fifth wave advance in the medium term five wave rally from 1.7230 (or from 1.7047). Firm break above 1.9199 projection target will encourage further rise to 1.9554 (2004 high).



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