New York Forex Report: Could Dollar Dead Cat Have Legs?

New York Forex Report: Could Dollar Dead Cat Have Legs?

New York Forex Report: The market opens the week with a slight risk-on bias, probably due to North Korea not launching another missile. As such, equities are a little firmer, as is the USD alongside US treasury yields. While the USD accelerated lower harder than many expected last week, it remains within key USD support regions and continue to have significant warning signs that a broader rebound can develop in the short-term. Chinese inflation came in somewhat stronger than expected and continues the recent run of data that has surprised to the upside. Further evidence that the Chinese economy is potentially stabilising after their recent tightening measures. This should continue to support interlinked markets, especially in the commodity sectors. After a disappointing outcome from the ECB meeting last Thursday, Executive Board Member Coeure is speaking today and may provide further clarity around their stance on currency strength and the announcement by President Draghi that they will address all matters regarding QE in October.

NORTH AMERICA Reports revealed that wholesale inventories in the US grew 0.6% MoM in July, upwardly revised from 0.4% in the first print but a dip form 0.7% recorded in June. Meanwhile, US consumer credit surged $18.4b in July, up sharply from $11.8b in the preceding month. New York Fed President, William Dudley (permanent voter in FOMC) speaking in a CNBC interview on Friday ahead of Hurricane Irma, said that the initial impact of Hurricanes Harvey and Irma in both human and economic costs will be harmful but in the long run, will actually lead to increased economic activity “because you have to rebuild all the things that have been damaged by the storms.” Dudley added that he did not think the near-term economic damage would have much effect on Fed policy and that the Fed will begin unwinding its US$4.5 trillion balance sheet “relatively soon” though he acknowledged that the timing of the next rate hike is up in the air.

EUROPE A Reuters report on ECB quoting ‘sources’ on Friday (8 Sep) claimed that ECB policy-makers discussed four QE scenarios on Thursday (7 Sep) and agreed that the next step is to cut stimulus and should be done with broadest possible consensus. The QE options included buys at EUR 40bn or EUR20bn a month while the extension options include six months or nine months. Indicators from the UK were mixed; industrial output slowed on a monthly basis, rising 0.2% MoM in July from 0.5% in June, but picked up slightly to 0.4% YoY from 0.3%. Output was driven by acceleration in manufacturing production (Jul: +1.9% vs Jun: +0.6%) amid firm production in textiles & leather products, electrical equipment as well as transport equipment. The NIESR estimated that UK GDP grew 0.4% in the three months ending August, accelerating from 0.2% in the quarter ending July. However, the Institute noted that growth remains below long-term average of 0.6%. On the other hand, construction output fell 0.9% MoM in July, extending the recent 0.1% dip in Jun. In terms of trade, the trade deficit widened slightly to £ 11580m from £11530m.

ASIA Eco Watcher’s sentiment surveys revealed that the Japanese remains a little pessimistic on current conditions, but are more optimistic about outlook. The current index stayed unchanged at 49.7 in August, while the outlook index rose to 51.1 in August, up from 50.3 in July. Concerns of China’s pace of growth persisted after exports slowed in August, rising 5.5% YoY compared to 7.2% in July. Shipments to the US gained 10.7%, but was slower than the 12.3% achieved in July. Exports to major markets such as Hong Kong and Japan also slowed, but accelerated in South Korea.

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

Technical: 1-3 Day View – 1.2070 achieved as 1.1980 acts as near term support 1.2165 becomes the next upside objective ahead of 1.2260 only below 1.1810 concerns the near term bullish bias

1-3 Week View – 1.20 achieved bulls look for a test of 1.2130 as the next upside objective. Weekly close below 1.16 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – 1.3160 achieved as 1.3050 supports price there is potential for a platform to test the 1.3260’s former cycle highs, only below 1.2910 opens a move back to 1.2850

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3263 only a close back below 1.28 would jeopardise the bullish advance.
Retail Sentiment: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – 107.33 achieved profit taking pullback underway the initial focus as 108.6/800 caps near term corrections bears target a retest of current cycle lows en route to the primary downside objective at 103.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – Upside objectives at 133 back in play, below 129.50 concerns bullish bias and opens the door to further test of bids back at 127.60 near term resistance sited at 130.60/80

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, 129.44 upside objective achieves as 128 supports bulls look for a move to test 133.36 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long

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