Dollar extends rebound in early US session after data showed inflation exceeded forecasts in May. Headline CPI accelerated to 3.6% yoy versus expectation of 3.4%, higher number since October 2008. Core CPI also beat expectation of rose 1.5% yoy, highest number since January 2010. However, Empire state manufacturing index unexpectedly turned negative to -7.8, the worst number since November, suggesting contraction. Dollar index managed to break above 75 level to resume recent rebound from 73.50 and is set to target 76.36 resistance next.
On the other hand, Sterling is soldoff today after disappointing job market data. Claimant count rose more than expected by 19.6k in May. Unemployment rate was unchanged at 7.7% in April. Also, wage growth slowed to 2% in three months through April, the lowest since the quarter through August. The data brought traders back to reality that BoE would stand pat for much longer than it was through three months ago.
Australian dollar was lifted by hawkish comments from RBA Governor Stevens. Stevens said that "further tightening of monetary policy is likely to be required at some point." He emphasized the importance of a huge trade and mining boom that would eventually boost incomes and investments over time. Demand from China and India in natural resources lifted Australia's term of trade to 85% above average of the last century and would add extra income worth of 15% of GDP. Stevens said that another comprehensive round of price data in late July and that would be a key for deciding when to raise rates again.
Other data released today saw Canadian manufacturing shipments dropped -1.3% mom in April. Eurozone industrial production rose 0.2% mom, 5.2% yoy in April. Swiss combined PPI dropped -0.2% mom, -0.4% yoy in May. Australian consumer sentiment dropped -2.6% in June while housing starts rose 3.1% in Q1.
Dollar index's break of 74.96 resistance confirms that rebound from 73.50 has resumed. Bias is back to the upside and further rise could now be seen towards 76.36 resistance first. Note bullish convergence condition in daily MACD. Break of 76.36 resistance will firstly confirm that whole rebound from 72.69 has resumed. Secondly, this will argue that dollar index has bottomed out in medium term and would pave the way to medium term retracement level at 78.80.
GBP/USD Outlook
Daily Pivots: (S1) 1.6336; (P) 1.6388; (R1) 1.6422;GBP/USD's fall from 1.6441 accelerate to as low as 1.6226 so far today. The development indicates that choppy correction from 1.6546 is still in progress and would likely extend below 1.6212 support. However, we'd still treat price actions from 1.6546 as a correction only based on its structure and hence, would be looking for strong support above 1.6058 to contain downside and bring rebound. Above 1.6441 will flip bias back to the upside for 1.6546 and then 1.6746. However, break of 1.6058 will indicate resumption of fall from 1.6746 instead.
In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5935 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, below 1.5935 support will indicate that rise from 1.4230 is completed and further break of 1.5343 will confirm this case and target 1.3503/4230 support zone.
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