Dollar Weakens Again as German Ifo Lifts Euro, Yen Even Weaker as Risk Appetite Returns

Dollar’s selloff resumes after Fed is starting its two day policy meeting today. In particular, EUR/USD extends recent rally and is pressing 1.17 as helped by record sentiment data. The greenback, on the other hand, stays weak on uncertainty over Fed’s outlook. Politics in the US is also weighing on the greenback. There are news about US President Donald Trump’s son-in-law Jared Kushner’s contacts with Russia. There are also news of Trump blasting attorney general Jeff Sessions. And there are news that Trump’s boy scout Jamboree speech angered parents. But, there seems to be no news regarding tax reforms and expansive fiscal policies.

Nonetheless, the Japanese yen is even weaker following rally in European indices. At the time of writing, FTSE is trading up 0.95%, DAX up 0.68% and CAC up 1.2%. Stocks in Europe are boosted by oil and commodities. DOW follows by having triple-digit gain at open and is set to make new record high. Released in US session, US house price index rose 0.4% mom in May, below expectation of 0.5% mom. S&P Case-Shiller 20 cities house price rose 5.7% yoy in May, below expectation of 5.8% yoy.

Quick update: US Conference Board consumer confidence rose to 121.1, above expectation of 116.

German Ifo hits record as economy is powering ahead

German Ifo business climate rose to 116.0 in July, up from 115.1 and beat expectation of 114.9. That’s the sixth straight month of improvement and the highest level since 1997. Expectations gauge rose to 107.3, up from 106.8, above expectation of 106.5. Current assessment gauge rose to 125.4, up from 124.1, above expectation of 123.8. Ifo President Clemens Fuest said in a statement that "sentiment among German businesses is euphoric," and the "economy is powering ahead." Also, "companies’ satisfaction with their current business situation reached its highest level since Germany’s unification" and "short-term business outlook also improved". Also from Europe, German import price dropped -1.1% mom in June. UK CBI trends total orders dropped to 10 in July.

ECB Mersch: Substantial degree of monetary accommodation is still needed

ECB Executive Board member Yves Mersch continued to sound cautious and said that "a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation." Also, he said that "reflationary forces are at play" and "price pressures in the early stages of the pricing chain remain strong". they "have still not transmitted to the later stages." Though, he’s optimistic that "political winds are becoming tailwinds". And, "there is newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment, if confirmed by decisive action."

BoJ minutes showed members divided on revealing exit strategy

The minutes of the June 15-16 BoJ meeting showed that board members were divided on how much information about exit strategy should be revealed to the public. The minutes noted that "some members said it was important to thoroughly explain the BOJ’s thinking on how it will manage policy and the impact on the central bank’s finances to gain understanding." On the other hand, "several members said providing uncertain information before meeting the inflation target could cause market confusion, so it is important to continue internal analysis on this subject." BoJ will released summary of opinions in the July meeting later on Friday, which could more information on the discussions afterwards.

Meanwhile, two new BoJ board members also expressed that it’s not time to talk about stimulus exit yet. Goushi Kataoka said that "before any exit strategy we must think about how to bring inflation to the 2 percent price target in a stable manner". Hitoshi Suzuki said it’s somewhat risky" to starting discussing exit when inflation is far below the 2% target. The pair joined the board this week replacing regular dissenters Takahide Kiuchi and Takehiro Sato.

Crude Oil Recovers as Saudi Arabia Promised to Cut Exports in August

Oil price recovered mildly after Saudi Arabia’s oil minister Khalid Al-Falih announced that it would cap its exports at 6.6M bpd in August, 1M bpd below that the same period last year. He acknowledged that "the market has turned bearish with several key factors driving these sentiments", admitting that weaker compliance with cuts by some OPEC states and a rise in OPEC exports were one of the factors leading to weaker oil prices. He added that "some countries continue to lag which is a concern we must address head on" and "exports have now become the key matrix to financial markets and we need to find a way to reconcile credible exports data with production data". On the global oil demand outlook, Falih expect growth would reach +1.4- 1.6M bpd in 2018, a rate that should offset US output expansion.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1615; (P) 1.1650 (R1) 1.1674; More…

EUR/USD’s rally resumes after brief consolidation and reaches as high as 1.1711 so far. Intraday bias is back on the upside. Current up trend is expected to target 1.2 handle next. On the downside, below 1.1625 minor support will turn intraday bias neutral and bring consolidation. But downside of retreat should be contained above 1.1444 resistance turned support and bring another rally.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained break of 55 month EMA (now at 1.1760) will pave the way to key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. While rise fro 1.0339 is strong, there is no confirmation that it’s developing into a long term up trend yet. Hence, we’ll be cautious on strong resistance from 1.2516 to limit upside. But for now, medium term outlook will remain bullish as long as 1.1295 support holds, in case of pull back.

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