Down Trend of Dollar and Yen Still in Force

Dollar and yen turned sideway in Asia as markets digest yesterday's losses. Nevertheless, the recovery is so far shallow and proves no evidence of a short term bottom yet. The current broad based down trend in dollar and yen will likely continue as the day goes. Note that commodity currencies are somewhat lagging behind European currencies despite strong rally in commodities and stocks. Instead, Sterling is the strongest currency so far this week, rising over 300 pips against yen and 250pips against dollar, supported by positive news in the UK banking sector. based on short term bearish outlook in EUR/GBP, we'd expect the pound to continue to outperform Euro for a while.

As widely anticipated, the RBA left the official interest rate unchanged at 3% for the 4th consecutive month. Moreover, the central bank has now shifted to a neutral bias on monetary policy from easing bias in previous months. Nevertheless, Aussie didn't receive additional support from this event as it should be priced in already after recent speech from RBA Governor Stevens. More details here Review On RBA Meeting (August): End Of The Easing Cycle. Besides, mixed data were released from Australia overnight with retail sales unexpectedly dropped -1.4% mom in June while house price index rose more than expected by 4.2% in Q2.

On the data front, Swiss CPI dropped more than expected by -0.7% mom, -1.2% yoy in July. Eurozone PPI is expected to recover mildly in June by 0.2% with yoy rate dropping more by -6.6%. US PCE deflator is expected to rise slightly to 0.2% yoy while core CPI is expected to slow further to 1.7% yoy in June. Personal income is expected to drop -1% while spending is expected to rise slightly by 0.2%.

Looking at the dollar index, the down trend extended through 77.69 key support as expected. Short term outlook remains bearish as long as 78.48 resistance holds and further decline should be seen. But after all, note that firstly, the decline from 89.62 is displaying a five wave structure and some sizeable rebound should be seen after completing the five wave sequence. Secondly, the fall from 89.62 is indeed viewed as the third (and also the last) leg of whole consolidation pattern that started at 88.46 and such consolidation is expected to end with the current fall. Hence strong support should be seen inside the current 75.89/77.69 support zone and we'll monitor for loss of momentum and reversal signal as the index approaches 75.89 support level.