Daily Report: Yen and Oil Driving Forex Markets

Dollar is broadly weaker as the day goes, led by selling in USD/JPY and pressured by strong rebound in oil prices to above $116 level. . Reactions in other dollar majors are so far mild as Euro and Sterling are both pressured in respective yen crosses. As mentioned earlier this week, risk aversion seems to be a stronger theme in the markets comparing to volatility in commodity prices and such bias is still in force as seen in today's price actions so far. In addition to worry on US credit market losses, markets are concerned with slowdown in the Eurozone economy and deeper recession in UK.

Note that the tricky relationship with commodity prices. On the one hand, rebound in commodity prices will put pressure in the stock markets which in turn trigger yen buying. In such case, USD/JPY will likely suffer most as the greenback is also under pressure. Selloff in commodity prices will probably trigger flow of fund from yen funded carry trades into dollar denominated assets. USD/JPY could indeed be supported and other yen crosses will suffer more. Though in either case, yen crosses will likely remains weak.

Japanese Jul trade balance released overnight showed 91.1b surplus, narrow than expected on strong rise of 18.2% in imports. Export rose 8.1%. Swiss trade surplus is wider than expected at 2.37b in Jul. Markets showed little reaction. Swiss combined PPI jumped 0.5% mom, 4.9% yoy in Jul, above expectation.

Economic calendar is busy today. From Eurozone main focus will be on Aug flash PMIs. Both manufacturing PMI and Services PMI in Eurozone are expected to stay in contraction region below 50 and deteriorate further to 47 and 48.3, confirming the down turn in Eurozone economy. UK retail sales will also be released and is expected to show -4.0% mom drop in Jul, with yoy rate slowed from 2.2% to 2.0%. Aug Swiss ZEW will also be released.

Canadian CPI will take center stage in early US session. Headline CPI is expected to accelerate from 3.1% yoy to 3.4% yoy in Jul with core CPI climbing from 1.5% yoy to 1.6%. US Leading indicator, jobless, claims and Philly Fed survey will also be released.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.56; (P) 109.91; (R1) 110.22; More.

USD/JPY's fall from 110.66 extends further as expected and reaches as low as 108.63 so far. As discussed before, a short term top is in place with bearish divergence condition in 4 hours MACD and RSI. Intraday bias is still mildly on the downside for deeper pull back to 108.36 support and below. Though, downside should be contained above 106.04 support and bring rally resumption. On the upside, above 110.29 minor resistance will indicate that recent rise from 103.76 has possibly resumed for next target of 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68.

In the bigger picture, USD/JPY has made a medium term bottom after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Rebound from 95.77 is still in progress and should be targeting 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68 first. Break will bring further rise to 61.8% retracement of 124.13 to 95.77 at 113.30. On the downside, a break of 103.76 support is needed to indicate rise from 95.77 has completed. Otherwise, further rally is still expected after consolidation.

Forex News Digest

• The Day Ahead Europe & UK: EU PMI and UK Retail Sales
• The Day Ahead Canada & U.S.: Canadian CPI and Philly Fed
• U.S. Preview: Jobless Claims Expected to Remain Elevated at 440k in W/E Aug 16
• U.S. Preview: Philly Fed to Remain in Decline for Ninth Straight Month
• CA Preview: Analysts Expect Canadian Inflation Rate To Edge Higher
• UK Preview: Economists Expect Further Weakness in UK Retail Sales for July
• EU Preview: German and Euro Zone PMIs Expected to Decline in August
• Wednesday's News Recap: Canadian Retail Sales Mixed, Crude Inventories Soar
• Closing Market Recap: Fannie and Freddie Trounced Again
• Dollar Falls Against Yen, Euro on U.S. Manufacturing Slump, Credit Losses
• Leading Index in U.S. Probably Fell for Third Month as Expansion Faltered
• Euro May Rise as RSI Charts Signal Losses Were Excessive, JPMorgan Says
• British Pound Declines Against Euro Before Retail Sales Report for July
• Australian, New Zealand Dollars Advance on Commodities, Yield Advantage
• Buy Australian Dollar Call Options Versus New Zealand Currency, RBC Says

More Forex News

Economic Indicators Update

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