Daily Report: Dollar's Mild Rebound Continues

Dollar fought back yesterday on the back of strong rally in the stock markets, pullback in oil prices, and a stronger than expected CPI reading but the momentum is so far mild. Fed minutes might sound a bit more hawkish than Bernanke's testimony, noting that some committee members said that “some firming in policy would be appropriate very soon” to fight inflation. Nevertheless, markets are not that convinced yet with interest rates futures showing 41% chance of a hike by Dec, down from 44% a week ago.

Another critical factor to the possibility of Fed's move is the situation in the housing markets. The National Association of Home Builders (NAHB) housing market index showed homebuilders confidence dropped to a new record low of 16 in Jul. New residential construction data will be released today and is expected to show further deterioration in building permits and housing starts in Jun. It will be hard for the Fed to remove policy accommodations if markets can't see an end to the housing recession. Philly Fed survey and jobless claims will also be released today.

Other event to be focused today include Swiss ZEW and Bank of Canada Monetary Policy Report.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9712; (P) 0.9764; (R1) 0.9799; More

AUD/USD's retreat from 0.9849 is still in progress and with an intraday top in place at 0.9849, further pull back could still be seen to 4 hours 55 EMA (now at 0.9674). But downside should be contained well above 0.9475 support and bring rally resumption. As discussed before, prior break of near term trendline resistance reaffirms underlying strength in AUD/USD. Above 0.9849 will indicate recent rally has resumed for 1.0000 psychological resistance.

In the bigger picture, the whole rally from 0.8512 is still in progress. Also, note that the break of near term trend line resistance and break out of bearish divergence conditions in daily MACD and RSI are both reaffirming the underlying strength in AUD/USD. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity. On the downside, break of 0.9475 support is needed to be the first signal that a short term top is formed. Otherwise, recent uptrend is still expected to extend further.

Forex News Digest

• The Day Ahead Canada & U.S.: U.S. Housing Starts, Jobless Claims
• The Day Ahead Europe & UK: Italian Trade Balance; EU Current Account
• U.S. Preview: Philly Fed to Remain Depressed for Eighth Straight Month
• U.S. Preview: Jobless Claims Expected to Rise to 380k for Week Ending July 12
• U.S. Preview: Housing Starts Expected to Drop 15k in June
• Wednesday's News Recap: FOMC Minutes Released, U.S. CPI Inflation Surges
• Closing Market Recap: Fixed Income Markets Down, Equities on Rise
• Dollar Falls Against the Euro Ahead of U.S. Housing, Manufacturing Reports
• Dollar May Rise Next Year as U.S. Weathers Slump, Deutsche's Fukaya Says
• British Pound Rises to $2.002, Little Changed at 79.24 Pence Versus Euro
• Sovereign Funds Are Looking to Reduce Holdings in U.S. Dollar, FT Reports
• S&P Attempts to Make Large Buyouts More Transparent, Financial Times Says

More Forex News

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