Mid-Day Report: Dollar Mildly Higher on Fastest Inflation in 26 Years

Data today showed inflation risks in US has intensified as Bernanke said yesterday. Headline CPI surged by 1.1% mom in Jun, stronger rise since 1982, pushing yoy rate sharply higher from 4.2% to 5%, highest since 1991 and way above expectation of 4.5%. Core CPI was also up from 2.3% yoy to 2.4% yoy. Real earnings, on the other hand, dropped -0.9% in Jun, the biggest monthly decline since 1984. Though, dollar is mildly higher after the release but impact to the fx markets is limited so far, as traders awaits second part of Bernanke's testimony, in particular on his response to today's inflation data.

Other data released from US include TIC capita flow which dropped from 115b to 67b in May. Industrial production climbed 0.5% mom in Jun with capacity utilization up to 79.9%. FOMC meeting minutes will be released later today. Also, NAHB housing market index will be featured.

Released earlier, Eurozone HICP in Jun confirmed to be 0.4% mom, 4.0% yoy. Sterling was mildly lower after data showed Claimant count in Jun jumped 15.5k, above expectation of 10k. Unemployment rate was mildly down from 5.3% to 5.2% in May.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 103.80; (P) 105.04; (R1) 105.93; More.

While oversold condition, as seen in 4 hours RSI, is initially containing USD/JPY's sharp fall, outlook remains unchanged. Intraday bias remains on the downside as long as 105.12 minor resistance holds. Further decline should be seen to test key near term support at 102.73. On the upside, above 105.12 will indicate that an intraday low is in place and bring consolidation. But recovery should be limited well below 106.80 resistance and bring fall resumption.

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. Failure of 108.59 resistance was taken as the first signal that rebound from 95.77 has completed. Further break of 102.73 support will confirm this case. At this moment, it's premature to conclude whether rise from 95.77 represent whole correction pattern to fall from 124.13 or just part of it. But in either case, deeper fall should be seen to 61.8% retracement of 95.77 to 108.59 at 100.66. On the upside, while strong rebound cannot be ruled out, short term risks will remain on the downside as long as long 108.59 key medium term resistance holds.

Forex News Digest

• U.S. June Core CPI Up 0.3% as Total Inflation Surges 1.1%
• U.S. Real Earnings Continue to Decline in June
• Canadian Manufacturing Sales Rise Sharply In May
• Overnight News Recap: UK Claimant Rate Moves Up, EU CPIs Unrevised
• Euro Zone Inflation Reaches 4.0% in June Year-Over-Year
• Swiss May Retail Sales Rise 9.3% Yearly, 7.4% in Real Terms
• BOJ Downgrades Growth Outlook
• Japanese Tertiary Industry Index Pulls Back in May
• RBA's Stevens Confident 3.0% Inflation Can Be Achieved in Medium Term
• U.S. Consumer Prices Climb the Most in 26 Years as Fuel, Food Costs Jump
• Dollar Rises Versus Euro on Wells Fargo Earnings, Accelerating Inflation
• Dollar Optimism Dissipates as Confidence in Fed, Treasury Maneuvers Ebbs
• Dollar May Weaken to 103.70 Yen on Technical Charts, Mitsubishi UFJ Says
• Swiss Franc Rises Against Euro, Dollar on Growth, Interest-Rates Outlook
• Australian Dollar Falls From 25-Year High; Stevens Says Inflation to Slow

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