Morning Report: USD Drops On Dovish Minutes

Market Commentary  

USD fell on FOMC minutes and weaker than expected CPI data overnight. July FOMC minutes was perceived to be more dovish than expected. There was no clear conviction that a rate hike in Sep was imminent. Most members judged that the conditions for policy firming had not yet been achieved but noted that conditions were “approaching”. FOMC members also raised concerns of a material slowdown in China’s economy, downside risks to inflation from possible dollar appreciation and declines in commodity prices. Jul CPI data released overnight further dampened sentiment of rate hike in Sep. Markets are now only pricing in 36% probability of rate hike in Sep (vs. 48% previously). DXY was last at 96.35 levels this morning (vs. overnight high of 97 levels)

EUR reversed initial losses to close firmer above 1.11-handle on USD softness following dovish FOMC minutes and softer than expected US CPI inflation. Expectation of US possibly delaying rate hike suggest that monetary policy divergence between US and EU could take a breather. EUR was last at 1.1140 levels, higher than overnight close. On Greek’s 3rd bailout package, German parliament has voted in approval.

GBP performance overnight amid a doveish FOMC is a testament to good supply in GBP from reported  real money and fast money names already positioned in the currency. Cable remains top­heavy on a 1.57 handle, but given what we anticipate to be further USD weakness in the short term, a stronger than expected retail sales print later could help propel the pair above 1.5720.

USDJPY slipped below the 124-handle to a recent low of 123.69 on speculation that a Sep Fed lift-off is off the table. Markets gave short-rift to the weak data out yesterday that showed industrial activity coming in below market expectations (0.3% m/m vs. 0.4%) and machine tool orders moderating 1.7% y/y in Jul compared to Jun’s 6.6% as the focus shifted to the Fed. Pair is now rebounding, inching closer back to the 124-handle at 123.86 on possible short term players profit taking. With the Fed still in focus, look for upside to be curbed by 124.15, while further dips limited by 123.50.

Technical  Commentary 

EURUSD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

  • 1.1010/30  contains downside expected move back to the 1.1110/30 area has developed as anticipated, while 1.1090/70 supports intraday expect a test of 1.12 offers and stops above 1.1250
  • Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology bearish but attempting midpoint test from below
  • Monitoring intraday price and Order Flow indicators on a test of 1.1250 or 1.10

eu2015-08-20 07_36_57-

GBPUSD: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bearish

  • Range trade persists,  1.57 offers and stops above under pressure, a close above 1.57 targets 2015 highs next at 1.59. A break of 1.5550 would embolden bears and refocus attention back on the 1.5285 bearish symmetry objective.
  • Daily Order Flow bullish; OBV sideways, Linear Regression pierces midpoint form below, Psychology testing midpoint from below
  • Monitoring intraday price action and Order Flow indicators on a test of 1.5550 or 1.5750

gu2015-08-20 07_38_51-

USDJPY: Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bullish

  • Bulls target 125.85 and 128 in extension, primary support is at 124 only a failure at pivotal 122.50 concerns medium term bullish view
  • Daily Order Flow bearish; OBV sideways to down, Linear Regression and Psychology supported at midpoints
  • Monitoring intraday price action and Order Flow indicators on a test of 125.85 or 124

uj2015-08-20 07_41_12-

EURJPY: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

  • While 136.50 caps downside reactions bulls now target symmetry objective at 141.70, a failure at 136.50 opens a retest of range support at 134/33. Intraday support moves to 1.37.50
  • Daily Order Flow bearish; OBV sideways to up, Linear Regression and Psychology bearish but attempting to test midpoints from below
  • Monitoring intraday price action and Order Flow indicators at 141 and 136.50

ey2015-08-20 07_43_09-