Mid-Day Report: Dollar Rally Limited by Tamer CPI

Dollar gives back some of the earlier gains in US session after reports showed tamer than expected consumer inflation in Apr. Headline CPI moderated from 4.0% yoy to 3.9% versus expectation of 4.0% while core CPI moderated from 2.4% yoy to 2.3% versus expectation of 2.4%. Odds for Fed to be on hold in June as implied by interest rates futures is down a little bit after the news bet remains high over 90%.

Earlier today, Sterling dives further against dollar after weaker than expected employment report and BoE quarterly inflation report. Unemployment rate was unchanged at 5.% in Mar. In Apr, claimant count was unchanged at 5.2% why the actual number surged by 7.2k following upwardly revised 3.6k in Mar. BoE noted that it's 'facing its most difficult challenge yet'. Annual CPI is likely to rise to around 3.5% to 3.7% by Autumn 08 and could even tough 4.0%. If rates are left unchanged at 5.0%, growth could fall below 1.0% and is at risk of stalling.

Euro, on the other is mixed. industrial orders fall -0.2% mom in MArch, dragging yoy rate down fro 3.2% to 2.0%. The Japanese yen remains broadly weak. Data from Japan released overnight saw domestic CGPI easing from 3.9% yoy to 3.7% in Apr but being above consensus of 3.6%. Trade surplus widened slightly more than expected to 1250b in Mar.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.0444; (P) 1.0500; (R1) 1.0582; More

USD/CHF's rise from 1.0388 stalls below 1.0623 and is still staying in established tight range. Intraday outlook remains neutral for the moment as further consolidation could still be seen. Nevertheless, with bearish divergence condition in 4 hours MACD and RSI, rise from 0.9995 could have already completed at 1.0623. Hence further downside is still in favor. Below 1.0388 will suggest fall has resumed for lower channel support (now at 1.0209). However, break of 1.0623 will indicate whole rise from 0.9634 has resumed for 1.0890 support turned resistance.

In the bigger picture, a medium term bottom is in place at 0.9634. Subsequent rally from there is still treated as correction to whole medium term down trend only. Short term focus is on the mentioned channel support. On the one hand, as long as this channel holds, rebound from 0.9634 could still extend further to resistance zone of 1.0890 to 1.1596. With 38.2% retracement of 1.3283 to 0.9634 at 1.1028 in side the range. But strong resistance should be seen there.

However, break of the channel support will be the first alert that rise from 0.9634 has already completed with three waves up to 1.0623. Further break of 0.9995 support will confirm this case and bring deeper decline to retest 0.9634 low. Also, in such case, the corrective nature of the rise from 0.9634 will maintain the medium term bearish outlook.

Forex News Digest

• BOE Governor King Says No Chance of UK Recession
• U.S. Core Consumer Prices Rise 0.1% in April
• U.S. Real Earnings Decline in April
• BOE Sees Real Risk of High UK CPI Inflation, May Rise to Near 4% Over 2008 (Update)
• Overnight News Recap: UK Facing Inflation Problems, PBOC to Fight Higher Prices
• UK Unemployment Remains Unchanged at 5.2% as Expected
• Euro Zone March Industrial Output Falls by Less Than Expected
• Dollar Pares Gain Versus Euro on Slower-Than-Forecast Inflation in April
• Dollar Bears Turn Bullish With Fed Approaching End of Rate Cutting Cycle
• Canadian Dollar Increases for a Fourth Day on Global Confidence Rebound
• Rogers Says Dollar Rally an Opportunity to Buy Japanese Yen, Swiss Francs
• Swiss Franc Falls After Rally in European Stocks Boosts Carry-Trade Demand
• Asian Currencies Decline on Speculation Federal Reserve to Halt Rate Cuts
• Australian Dollar Declines After Wage Report; New Zealand's Dollar Weakens

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