Dollar Steady To Firm In Asian Trading

European Morning Update

Asia has seen a fairly quiet session with just a couple of releases from Australia. Building Approvals provided a shocker with a -1.7% MoM decline in August, a way stronger decline than consensus forecasts of -0.5%. Private sector house approvals actually saw an increase of +0.9% MoM. Once again the construction sector is seeing a lack of interest by Australians in upgrading their homes and preferring to use available income for more recreational purposes while the labor market remains tight and jobs plentiful.

The Performance of Service Index in Australia saw a rise of 4.8 points in September to bring the headline index to 56.4. A strong services sector provided a strong boost. Notably, input prices dipped by 10 points to 63.5 and employment rose by 5.7 points to 56.9. To complete the overall positive report the new orders index rose a healthy 8.7 points to 58.8. Good numbers indeed and while the RBA has resisted hiking interest rates this month the pressure still seems very much on the upside and it can only be a matter of time before the next hike.

The following economic releases are due today:

U.S. August Factory Orders - 2.4%
U.S. September Initial Jobless Claims (29th) 310K
U.S. September Continuing Claims (22nd) 2550K

The ECB is due to announce its rate decision
The BOE is due to announce its rate decision

The Dollar had another strong day and the depth of this is beginning to concern. The base at 1.4082 Euro I can accept within a structure that could still see a rally back up to 1.4353-1.4424 but the uncertainty I have now is from the Swissie which clipped just above 1.1800. It hasn’t been by much but the implications of such a deep recovery do seem to suggest additional gains. As for the Pound, well that too has breached levels that appear to favor the downside too…

Another factor is the momentum picture which still seems quite negative for the Euro and the Pound while still bullish in the Swissie.

So it seems I have to review a little. There is no change to the 2-3 month view of Dollar losses but it seems most likely that the shorter term could seem some range trading that could last for 2-3 weeks. Now, what needs to be kept in mind is the time line of a final Dollar low around the turn of the year. Clearly we need to plan for a sufficient consolidation but then if this ends by the end of October it will leave 2 months for the final decline. This may work but I wouldn’t really want the current correction to end before the end of October.

Just in case the overnight levels do actually hold to generate Dollar losses, I’d be slightly more comfortable but this now needs to be proven.

Dollar-Yen has made the gains expected and does look quite constructive for a possible direct rally to 120.25 and above. The big barrier sitting between this rally and a further pullback and consolidation is the 117.12-20 resistance. While this holds there is still some risk of a pullback. However, right now, with the Dollar looking to make gains against the Europeans the upside against the Yen still looks more probable.