Dollar Breaks Near Term Support, Starting Another Leg in Down Trend

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Dollar’s selloff accelerates entering into US session, taking out recent lows against all major currencies except Yen. Another leg in the near term down trend has started. Swiss Franc and Yen are the next weakest, together with New Zealand dollar. On the other hand, Sterling and Euro are both riding on the wave and strengthen across the board. Gold is extending recent rebound, taking out 2010 handle. Crude oil, nevertheless, stays below recent top.

Technically, EUR/USD has taken out 1.1916 resistance. GBP.USD broke 1.3185 resistance. AUD/USD broke 0.7243 resistance. USD/CHF broke 0.9050 support. USD/CAD took the lead earlier by breaking 1.3191 support. A focus is now on whether USD/JPY would break 105.30 support to confirm completion of rebound from 104.18. At the same time, EUR/JPY might diverge with USD/JPY and break 126.75 resistance. We’ll keep an eye on the interactions.

In Europe, currently, FTSE is down slightly by -0.01%. DAX is up 0.50%. CAC is up 0.15%. Germany 10-year yield is up 0.008 at -0.442. Earlier in Asia, Nikkei dropped -0.20%. Hong Kong HSI rose 0.08%. China Shanghai SSE rose 0.36%. Singapore Strait Times dropped -0.33%. Japan 10-year JGB yield dropped -0.0054 to 0.040.

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US building permits rose rose 1.5m in Jul, housing starts up to 1.5m

US building permits rose 18.8% mom in July to 1495k annualized rate, above expectation of 1330k. Single-family authorizations rose 17.0% mom. Authorizations of units in buildings with five units or more were at 467k.

Housing starts rose 22.6% mom to 1496k, above expectation of 1230k. Single-family housing starts rose 8.2% mom. Rate for units in buildings with five units or more was 547k.

Australia trade minister: China’s anti dumping investigation disappointing and perplexing

Trade dispute between China and Australia heightens after China’s Ministry of Commerce indicated it had decided to initiate the anti-dumping investigation into Australia’s wine industry. Australia Trade Minister Simon Birmingham hit back and criticized the move as ”disappointing and perplexing”

Birmingham said, “Australian wine is not sold at below market prices and exports are not subsidized. Australia will engage fully with the Chinese processes to strongly argue the case that there are no grounds to uphold the claims being made.” “This is a very disappointing and perplexing development”.

RBA rules out further easing, continue to assess the evolving situation

Minutes of August 4 RBA meeting showed board members “reaffirmed that there was no need to adjust the package of measures in Australia in the current environment.” Nevertheless, they agreed to “continue to assess the evolving situation” and “did not rule out adjusting the current package if circumstances warranted.”

RBA noted that “the worst of the global economic contraction had passed” but outlook remained “highly uncertain”, depending upon containment of the coronavirus. Australia’s downturn “had not been as severe as earlier expected” and “a recovery was under way in most of Australia”. Though, the recovery is likely “slower than earlier expected” too with outbreak in Victoria.

Reuters Tankan manufacturing rose to -33, best since April

Reuters Tankan manufacturing index rose to -33 in August, up from -44. While still deeply negatively, the reading was already the best since April’s -30. Further improvement in manufacturers’ mood is expected as they forecast rise to -22 in November.

No manufacturing index also rose slightly to -23, up from last month’s -26, standing at the same level as April’s. However, deterioration is expected ahead, with the index forecast to drop back to -26 in November.

Respondents noted that demands remain weak despite improving from Q1. Us-China trade tensions present uncertainty for the outlook. The survey, designed to track BoJ’s Tankan, polled 495 large- and mid-sized non-financial companies, of which 232 firms responded.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1841; (P) 1.1861; (R1) 1.1893; More…..

EUR/USD finally breaks 1.1916 resistance today to resume larger rally from 1.0635. Intraday bias is back on the upside for 61.8% projection of 1.1255 to 1.1916 from 1.1711 at 1.2119 first. Break till target 100% projection at 1.2372 next. On the downside, break of 1.1711 support is needed to indicate short term topping. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, down trend from 1.2555 (2018 high) has completed at 1.0635 already. Rise form 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally rise should be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516 ). This will remain the favored case as long as 1.17114 support holds.