Watch this key level in the Dollar
US trade deficit widened more than expected in Jul to $68b from $64.8b versus expectation of $65.5b. This may not look too bad as oil price has been falling recently which should help narrow the trade deficit in the coming months. However, looking into the details, the data are encouraging. Exports fell for the first time in five months which imports continue to surge to an all-time high. Exports dropped by 1.1% to $120b which imports rose 1% to $188b. Dollar remains steady against yen and Euro but continues to weaken against sterling.
Earlier today, Sterling was boosted by stronger than expected consumer inflation data. Aug CPI increased 0.4% mom, 2.5% yoy versus expectation of 0.3% mom, 2.4% yoy. CPI inflation has now exceeded the 2% target for a fourth month. BoE Governor Mervyn King said earlier that there was a “50-50 chance” inflation may reach 3 percent this year as university fees, and energy and food prices increase. But with recent drop in energy price, the chance of this happening is reducing. Still, the strong inflation number today is maintaining the odds that BoE will have another hike to bring rates to 5% this year.
USD/JPY
Daily Pivots: (S1) 116.92; (P) 117.35; (R1) 118.08;
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USD/JPY turned sideway after reaching as high as 117.77 and continues to trade sideway today, pressing resistance zone between 117.87 and 61.8% projection of 113.95 to 117.49 from 115.57 at 117.76. At this point, intraday bias will remain on the upside as long as USD/JPY stays above 117.24 minor support and further rally is still in favor. below 117.24 will suggest a short term top is possibly formed and risk retreat towards 4 hours 55 EMA (now at 116.78).
In a bigger picture, 117.87 resistance remains the key focus. The whole rally from 108.99 has completed with a medium term top formed at 117.87 already with bearish divergence in daily MACD. Hence, a firm break above 117.87 is needed to confirm medium term rally resumption. for 118.88 (78.6% retracement of 121.38 to 108.99 at 118.73) and multi year falling trend line (147.68 to 135.20 then to 121.38, now at 118.70 level).
On the downside, a break below 116.60 support will suggest that rise from 115.57 has likely finished and further decline to 115.57 low could follow. But we’re treat such fall as part of sideway consolidation only if downside is contained by 115.57 support. Break of 115.57 is needed to indicate whole rise from 113.95 has completed.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui is the founder and CEO of
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