Dollar was sold off overnight as FOMC minutes showed worries of members over inflation. Political drama in the White House also added some weight to the greenback. Notable strength is seen in the Japanese Yen in Asian session. But commodity currencies are generally the strongest ones over the week. Weakness in the greenback was accompanied by strength in bonds, where 10 year yield dropped -0.04 to close at 2.226. Gold rode the wave and is back above 1290 after dipping to as low as 1272.7. And Gold looks set to have another attempt on 1300. WTI crude oil, on the other hand, continues to suffer and dipped to as low as 467.67, extending the decline from recent high at 50.43.
FOMC minutes show worries on inflation
The minutes of July 25-26 FOMC meeting showed that many policy makers "saw some likelihood that inflation might remain below 2 percent for longer than they currently expected". Also, "several indicated that the risks to the inflation outlook could be tilted to the downside." And, some officials suggested that Fed "could afford to be patient" regarding the next rate hike. Regarding the plan to unwind the USD 4.5T balance sheet, a few members wanted to announce in July meeting. Nonetheless, "most preferred to defer that decision until a coming meeting" for having a better assessment on the health of the economy.
The minutes confirmed markets’ view that the a December Fed hike is doubtful. And, unless inflation picks up in the coming months, Fed could hold off on rates till next year. Currently, Fed fund futures are pricing in 45.6% chance of a hike in December, slightly lower then yesterday’s 50%. The key to watch ahead is whether Fed will continue to describe the slowdown in inflation as "transitory" ahead.
Trump disbands two advisory councils
Political drama in US seems never-ending as President Donald Trump announced to disband two of his business advisory councils. That came after a number of business executives quitted with strong disagreement to Trump’s remarks about the violence at a white-supremacist rally in Charlottesville at the weekend. Those business leaders were deeply dissatisfied with Trump’s equating of neo-Nazis to counter protestors. Some analysts pointed out that business leader will still support Trump’s tax reform on policy basis. But the developments certainly won’t give any help to Trump’s administration and the Republicans on pushing through the economic agenda.
Dollar index stays bearish
We’re pointed out before that Dollar’s rebound this week doesn’t worry a trend reversal yet. This is so far consistent with the development in the dollar index. Recovery from 92.54 was limited below near term resistance level at 94.28. Such recovery is also corrective looking and thus, maintaining bearish outlook. Fall from 103.82 is still expected to extend to have a test on 91.91 key support level ahead.
ECB accounts to watch today
On the data front, Japan trade surplus widened to JPY 0.34T in July. Australia employment grew 27.9k in July, above expectation of 20.0k. Australia unemployment rate was unchanged at 5.6%. New Zealand PPI inputs rose 1.4% qoq in Q2 while PPI outputs rose 1.3% qoq.
ECB monetary meeting accounts will be a key to watch for clues on how ready police makers are on tapering the asset purchase. Eurozone will also release trade balance and CPI final. UK retail sales will be featured. Later in the data, Canada will release manufacturing sales. US will release Philly Fed survey, industrial production , leading indicators and jobless claims.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.7850; (P) 0.7891; (R1) 0.7967; More…
AUD/USD’s strong rebound and break of 0.7918 resistance suggests that pull back fro 0.8065 has completed at 0.7807. The pair was supported by 0.7785 cluster support (38.2% retracement of 0.7328 to 0.8065 at 0.7783) as expected. Intraday bias is turned back to the upside for retesting 0.8065 first. Firm break there will resume the medium term rise and target 100% projection of 0.6826 to 0.7833 from 0.7328 at 0.8335.
In the bigger picture, rise from 0.6826 medium term bottom is still in progress. At this point, there is no confirmation of trend reversal yet and we’ll continue to treat such rebound as a corrective pattern. But in any case, break of 55 month EMA (now at 0.8100) will target 38.2% retracement of 1.1079 to 0.6826 at 0.8451. Break of 0.7328 support is needed to confirm completion of the rebound. Otherwise, further rise is now expected.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 22:45 | NZD | PPI Inputs Q/Q Q2 | 1.40% | 0.90% | 0.80% | |
| 22:45 | NZD | PPI Outputs Q/Q Q2 | 1.30% | 0.70% | 1.40% | |
| 23:50 | JPY | Trade Balance (JPY) Jul | 0.34T | 0.20T | 0.08T | 0.09T |
| 23:50 | JPY | Merchandise Trade Exports Y/Y Jul | 13.40% | 13.40% | 9.70% | |
| 1:30 | AUD | Employment Change Jul | 27.9K | 20.0K | 14.0K | |
| 1:30 | AUD | Unemployment Rate Jul | 5.60% | 5.60% | 5.60% | 5.70% |
| 8:30 | GBP | Retail Sales M/M Jul | 0.60% | 0.60% | ||
| 9:00 | EUR | Eurozone Trade Balance (EUR) Jun | 20.3B | 19.7B | ||
| 9:00 | EUR | Eurozone CPI M/M Jul | -0.50% | 0.00% | ||
| 9:00 | EUR | Eurozone CPI Y/Y Jul F | 1.30% | 1.30% | ||
| 9:00 | EUR | Eurozone CPI – Core Y/Y Jul F | 1.20% | 1.20% | ||
| 11:30 | EUR | ECB Monetary Policy Meeting Accounts | ||||
| 12:30 | CAD | Manufacturing Shipments M/M Jun | -1.00% | 1.10% | ||
| 12:30 | USD | Initial Jobless Claims (AUG 12) | 240k | 244k | ||
| 12:30 | USD | Philadelphia Fed Business Outlook Aug | 18.8 | 19.5 | ||
| 13:15 | USD | Industrial Production Jul | 0.30% | 0.40% | ||
| 13:15 | USD | Capacity Utilization Jul | 76.70% | 76.60% | ||
| 14:00 | USD | Leading Indicators Jul | 0.30% | 0.60% | ||
| 14:30 | USD | Natural Gas Storage | 28B |
