Mid-Day Report: Dollar Extends Rally after Core PCE and ISM

Dollar remains firm today and is lifted higher in stronger core inflation reading in early US session. While the overall picture painted by today's economic data is mixed, markets are focusing on some part of it. Core inflation did came in stronger than expected as seen in core PCE's climbed from 2.0% yoy to 2.1%yoy. Headline PCE moderated from 3.4% yoy to 3.2% as expected though. Spending is another bright spot, doubling forecasts of 0.2% and grew 0.4% in Mar, up from prior 0.1%. However, income growth missed expected and slowed to 0.3%. Also, jobless claims came in much above expected at 380k.

Nevertheless, the greenback is further boosted after the released of ISM manufacturing index. The index remains unchanged at 48.6 in Apr. Though it's still a contractionary reading, it's at least showing that the contraction is not deepening. Price component also climbed from 83.5 to 84.5. Though, employment component is very weak, dropping sharply from 49.2 to 45.4, even lower than Feb's low of 46. Construction spending dropped more than expected by -1.1% in March.

Sterling was earlier boosted by positive comments from BoE and a slightly better than expected Manufacturing PMI. In the financial stability report, BoE said that "risk appetite will return gradually in the coming months, " suggesting the worst of credit crunch is probably over. PMI manufacturing dropped slightly from 51.3 in Apr, and is mildly better than expectation of 50.8. However, the pound gives back most gains in early US session.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0299; (P) 1.0371; (R1) 1.0414; More

USD/CHF has finally taken out mentioned 1.0352/83 resistance zone with some strength. At this point, intraday bias remains on the upside for 100% projection of 0.9634 to 1.0249 from 0.9907 at 1.0522 first. Break will bring stronger rally to 161.8% projection at 1.0902. On the downside, below 1.0328 will indicate that an intraday top is in place and bring retreat to 4 hours 55 EMA (now at 1.0277) and below.

In the bigger picture, firm break of 1.0352/83 resistance zone (50% retracement of 1.1105 to 0.9634 at 1.0370 and 38.2% retracement of 1.1596 to 0.9634 at 1.0383) will indicate that decline from 1.1596 has completed and a medium bottom is probably in place at 0.9634 . Sustained trading above 55 days EMA (now at 1.0325) support this case too. Further rebound should then be seen to resistance zone of 1.0890 to 1.1596, but strong resistance should be seen there, at least initially. On the downside, break of 0.9995 support is needed to confirm rebound from 0.9634 has completed. Otherwise, another rise is still in favor even in case of pull back.

Forex News Digest

• U.S. March Personal Income and Outlays Report Is Mixed, Economists Say
• U.S. Jobless Data Show Employment to Get Worse Before it Gets Better, Economists Say
• Australian Commodity Prices Spike Up in April
• Morning Market Update: Treasuries Rally on Employment and Inflation Data
• U.S. March PCE Core Deflator Advances More than Expected
• U.S. Initial Jobless Claims Rise 35k to 380k, Continuing Claims Rise 74k
• UK's Manufacturing PMI Declines Less Than Expected
• Overnight News Recap: EU & China Closed, BOE Optimistic on Market Losses
• Dollar Rises to Five-Week High Versus Euro on Bets Fed Rate Cuts Will Halt
• Mobius Says Fed May Reduce Interest Rates to 1%, Dollar Is `Bombed Out'
• Canada's Dollar Declines as Central Bank Signals More Interest-Rate Cuts
• Euro May Join Dollar as Main Reserve Currency, According to Eichengreen
• Pound Rises Against Euro as Bank of England Signals Worst of Crisis Over
• Euro May Rise to as High as $1.5830 on Technical Charts, BNP Paribas Says
• Swiss Franc to Advance Against Euro on Waning Risk Appetite, Says Dresdner
• Australian, New Zealand Dollars Rise on Widening Interest-Rate Advantage

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