Dollar Mildly Lower after PPI Miss, Gold Heading to 1300, WTI Oil Breaches 50

There is no change in the general risk-aversion mode in the financial markets today. Investors continue to watch the development of US-North Korea tension with much caution. Yen remains the strongest one but Aussie and Canadian Dollar are catching up. Gold extends recent rally and breaches 1290, setting to take on 1300 handle. WTI crude oil was lifted by news that OPEC raised demand forecast and breaches 50 handle finally. Dollar trades lower in early US session, in particular against Japanese Yen after disappointing PPI. New Zealand Dollar remains the weakest one after dovish RBNZ comments.

US PPI missed expectations, jobless claims steady

US headline PPI dropped -0.1% mom in July, missing expectation of 0.1% mom. PPI annual rate slowed to 1.9% yoy, down from 2.0% yoy, missing expectation of 2.2% yoy. Core PPI dropped -0.1% mom, below expectation of 0.2%. Core PPI annual rate slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 2.1% yoy. While Fed is generally expected to start unwinding the balance sheet in September, question remains on whether it will hike again in December. Slowdown in inflation will more likely keep Fed on hold throughout the year.

Initial jobless claims rose 3k to 244k in the week ended August 5, slightly above expectation of 240k. Initial claims have now stayed at or below 250k level for 10 straight weeks already. Continuing claims dropped 16k to 1.95m in the week ended July 29. From Canada, new housing price index rose 0.2% mom in June.

Oil breaches 50 as OPEC raised demand forecasts

WTI crude oil is gathering some upside momentum and breaches 50 handle today. OPEC raised forecast of demand by 100k barrels a day for both 2017 and 2018. That is, demand will reach 1.37m barrels a day this year. OPEC also lowered estimated supply of non-OPEC countries by 50k barrels a day in 2017 and 90k barrels a day in 2018. That offset the impact of rise in production in July due to Libya, Nigeria and Saudi Arabia.

Reuters poll: Half of economists expect ECB tapering in September

According to a Reuters poll, 25 of 50 economists surveyed expected ECB to make an announcement in September on tapering the EUR 60b asset purchase program. 15 expected the announcement to happen in October. Most of the others expected it to start in early 2018. Economists consensus for growth in Eurozone is 2% this year. They expect inflation to hit 1.5% this year, and 1.4% in 2018, both well below target of 2%. 43 respondents answered an extra question and believed that rising Euro will not threaten Eurozone’s recovery.

Sterling steady after mixed data

Sterling is staying in tight range against Euro after mixed economic data. Industrial production rose 0.5% mom, 0.3% yoy in June, above expectation of 0.1% mom, -0.1% yoy. Manufacturing rose 0.0% mom, 0.6% yoy, versus consensus of 0.0% mom, 0.7% yoy. Construction output dropped -0.1% mom in June. Trade deficit widened to GBP -12.7b in June. NIESR GDP estimate rose 0.2% in July. RICS house price balance dropped to 1 in July.

RBNZ left OCR unchanged at 1.75% as widely expected

As expected, the RBNZ left the OCR unchanged at 1.75%. Governor Wheeler reiterated that the monetary policy would remain accommodative for some time. The staff projection continued to forecast the first rate hike to come in 2H19. They also revised lower the short term inflation outlook and intensified the warning that a lower currency is needed for growth. NZD/USD jumped to a 3-day high of 0.7371 after the announcement, but gains were erased afterwards. At the time of writing NZD/USD has already resumed recent fall from 0.7553 and reaches as low as 0.7298. More in RBNZ Left Policy Stance Unchanged, Heightened Warning Over NZD Strength.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.62; (P) 109.98; (R1) 110.42; More…

Intraday bias in USD/JPY remains on the downside as the decline from 114.49 is still in progress. Further fall should be seen to 108.81 support. Break there will resume whole correction from 118.65 and target 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 111.04 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

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. If fall from 118.65 extends lower, down side should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Economic Indicators Update