Mid-Day Report

Dollar Selloff Extends after Weak CPI and Retail Sales

Typography

Dollar's decline accelerates in early US session after weak economic data. Headline CPI slowed to 1.6% yoy in June, down from 1.9% yoy and below expectation of of 1.7% yoy. Core CPI was unchanged at 1.7% yoy, in line with consensus. Meanwhile, headline retail sales dropped -0.2% in June, below expectation of 0.2%. Ex-auto sales dropped -0.2%, also missed expectation of 0.2%.

Technically, USD/JPY finally takes out 112.88 support firmly, which indicates near term reversal. The pair could now be heading back to 108.81. GBP/USD breaches 1.3 handle and this week's rebound extends. Focus will now be on 1.3029 resistance. USD/CAD took a break after BoC inspired decline but is now gathering momentum again.

Euro is the relatively weaker currency this week as markets are reassessing ECB policy path. Reuters quoted unnamed sources saying that ECB could indicate in the future that there is no fixed end to its asset purchase program. One source said regarding stimulus exit is that "the important thing is not to pre-commit and keep it very gradual." Another source said that "it's got to be data-dependent and we need to preserve the flexibility."

Meanwhile, according to a Reuters of economists, 47% of respondents expect ECB to announce tapering in September meeting. 25% expect ECB to extend QE at a reduced pace. 18% expects the decision to be made in October instead.

Released earlier today, Eurozone trade surplus widened to EUR 19.7b in May. New Zealand business manufacturing index dropped to 56.2 in June.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.92; (P) 113.22; (R1) 113.58; More...

USD/JPY's decline resumes in early US session and reaches as low as 112.44 so far. The break of 112.88 support indicates rejection from 114.36 resistance. And, rise from 108.81 should be completed at 114.49. More importantly, the corrective pattern from 118.65 is likely still in progress. Intraday bias is now back on the downside for 55 day EMA (now at 111.98). Firm break there will target 108.12 low and below. Above 113.57 minor resistance will turn focus back to 114.49 resistance instead.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 NZD Business Manufacturing Index Jun 56.2 58.5 58.2
04:30 JPY Industrial Production M/M May F -3.60% -3.30% -3.30%
09:00 EUR Eurozone Trade Balance (EUR) May 19.7B 20.3B 19.6B 18.6B
12:30 USD CPI M/M Jun 0.00% 0.10% -0.10%
12:30 USD CPI Y/Y Jun 1.60% 1.70% 1.90%
12:30 USD CPI Core M/M Jun 0.10% 0.20% 0.10%
12:30 USD CPI Core Y/Y Jun 1.70% 1.70% 1.70%
12:30 USD Advance Retail Sales Jun -0.20% 0.20% -0.30% -0.10%
12:30 USD Retail Sales Less Autos Jun -0.20% 0.20% -0.30%
13:15 USD Industrial Production Jun 0.30% 0.00%
13:15 USD Capacity Utilization Jun 76.80% 76.60%
14:00 USD U. of Michigan Confidence Jul P 95 95.1
14:00 USD Business Inventories May 0.30% -0.20%