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Dollar Softer on Disappointing Manufacturing Data, Commodity Consolidates
Dollar weakens mildly in early US session as data showed manufacturing activities slowed more than expected in May. The empire state manufacturing index dropped sharply from the one year high of 21.7 in April to 11.9 in May, much worse than expectation of 19.7. Nevertheless, above zero readings means manufacturing in New York, Northern New Jersey and southern Connecticut is still in expansion mode. TIC reports showed $24b inflow in March, less than half of expectation of $57.7b. Canadian manufacturing shipments rose 1.9% mom in March. Other data released saw Eurozone CPI finalized at 2.8% yoy in April with core CPI up 1.6% yoy while trade balance showed EUR -0.9b deficit in March. Japan Japan domestic CGPI rose 0.9% mom, 2.2% yoy in April. Machine orders rose 2.9% mom, 6.8% yoy in March. Household confidence dropped sharply to 33.4 in April.
Dollar also loses some strength as commodities consolidate even though global equities are broadly lower on Greece concern. Crude oil is soft below 100 but manages to hold above recent low at 94.63. Gold is also soft below 1500 but is holding above recent low of 1462.5. Dollar index touched 76 earlier today but retreats since there on lack of follow through buying. We're probably see more consolidations ahead.
The Greece situation will remain an important topic today as officials would aiming at agreeing on a way to avoid default of the country. Tougher conditions would be required should Greece needs additional fund to the EUR 110b bailout or an extension in maturities of Greek bonds. German finance minister Schaeuble said that " if there is a rescheduling (of the debt), all credit must be rescheduled." That is, private creditors should also be involved. ECB board member Start urged Greece to "intensify its consolidation efforts in order to meet the conditions for the payout of the next financial tranche".
There were some concerns that the arrest of IMF Chief Strassu-Kahn over the weekend on charges of attempted rape would prolong the discussion on the Greece issue. But it's believed that the eventual impact would be minimal. IMF will send a deputy to join the meeting. Also, there are expectations that agreement on Greece won't be made today in any case and will have to wait until EU and IMF assessments are completed at the end of the month. Meanwhile, approval of the EUR 78b bailout for Portugal and nomination of Bank of Italy Governor Draghi to the next president of ECB are also on the agenda.
AUD/JPY is one of the weakest currencies this month, following EUR/JPY and EUR/USD. Consolidation pattern from 90high is still in progress and we'd anticipate another fall in near term to 84.30 and below. But so far, we'd still expect strong support from 50% retracement of 74.48 to 90.00 at 82.24 to contain downside and bring rally resumption though 90 high. A break of 88.08 resistance will turn outlook bullish.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.8832; (P) 0.8889; (R1) 0.8980; More.
With 4 hours MACD crossed below signal line, a temporary top should be in place at 0.8945 and intraday bias is turned neutral. USD/CHF is still limited inside near term falling channel and there is no indicate of reversal. Below 0.8797 will suggest that corrective rebound from 0.8552 has completed and will flip intraday bias back to the downside for retesting this low first. Break will confirm down trend resumption. On the upside, focus will remain on 0.9006. Sustained break there will will also have near term falling channel, as well as 55 days EMA (now at 0.9005) taken out. Such development will suggest that USD/CHF has formed a medium term bottom at 0.8552 and stronger rise should then be seen towards 0.9339 resistance for confirmation. Nevertheless, before that, we'll stay bearish.
In the bigger picture, while the rebound from 0.8552 is strong, there is no indication of trend reversal yet. Whole decline from 1.1729 is still expected to continue towards 100% projection of 1.1729 to 0.9462 from 1.0065 at at 0.7798. However, sustained trading above 55 days EMA (now at 0.9009) will indicate that 0.8552 should be a medium term bottom and USD/CHF should then rebound back into 0.9462/1.0065 resistance zone instead.
Market Overview | Written by ActionForex.com | May 16 11 13:45 GMT
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