EUR/USD Rally Takes A Breath, Yen Recovers
ActionForex | Jan 31, 2013 04:27AM ET
FOMC statement overnight extended dollar's weakness against euro briefly but it quickly stabilized and recovered. But against, the close above 1.35 level in EUR/USD carried some larger bullish implications. Meanwhile, the breach of 0.91 support in USD/CHF also indicates more near term weakness ahead. Though, against other major currencies, dollar isn't that weak at all. AUD/.USD has indeed breached 1.0384 minor support today while would likely bring deeper selloff. USD/JPY lost some momentum as yen recovers on profit-taking. But there is no sign of reversal in neither USD/JPY and EUR/JPY yet. A number of important economic data will be released before the week ends, including personal income and spending today, and non-farm payroll and ISM manufacturing tomorrow. Much volatility is anticipated.
As expected, the Fed maintained the pace of asset purchases at US$ 85B and left the policy rate unchanged near 0%. There were few changes in the policy statement. Yet, policymakers noted that 'growth in economic activity paused in recent months', suggesting the monetary stance should remain accommodative. The central bank should remain in a 'wait‐and‐see' mode so as to monitor the impacts of fiscal austerity, in particular expiration of the payroll tax holiday expiration. Separately, the RBNZ delivered a more upbeat economic outlook for this year. More in U.S. FOMC Makes No Changes to Policy in January
On the data front, Japan housing starts rose less than expected by 10.0% yoy in December while industrial production also rose less than expected by 2.5% mom. UK Gfk consumer sentiment improved more than expected to -26 in January and nationwide house price rose more than expected by 0.5% mom. Australia import price index rose less than expected by 0.3% qoq in Q4. German retail sales dropped more than expected by -1.7% mom in December. German employment, CPI will be released later today. From US, main focus will be on personal income and spending which are expected o grow 0.8% and 0.3% in December respectively. Initial jobless claims is expected to rise back to 355 k in the week ended January 27. Chicago PMI is expected to be relatively steady at 51 in January. Canadian GDP will be a focus that would trigger volatility in USD/CAD and is expected to rise 0.2% mom in November. Canada will also release IPPI and RMPI.
Dollar index dropped sharply to as low as 79.17 but is still holding on to range of 79/81.45 so far. Firstly, outlook in the index is bearish as fall from 84.10 is expected to resume sooner or later but the question is when. Price actions from 78.60 are viewed as a sideway consolidation pattern and as long as 79.00 support holds, such consolidation might extend further. A break above 4 hours 55 EMA (now at 79.93) will likely bring another rebound. However, break of 79.00 will argue that the consolidation has completed and fall from 84.10 is resuming. And in such case, deeper fall should be seen through 78.60 low.
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