Mid-Day Report: Dollar Selloff Continues Despite Solid Job Data

Dollar’s selloff continues today in spite of positive job data. In particular, EUR/USD broke 1.0652 resistance. USD/JPY took the lead yesterday and broke 114.76 support. USD/CAD also broke 1.3080 key near term support. The dollar index also breached 55 days and breached 101 handle. Deeper decline is now in favor in the greenback in general, possibly except versus Sterling. US initial jobless claims rose 10k to 247k in the week ended January 7. Continuing claims dropped 16k to 2.1m in the week ended December 31. Import price index rose 0.4% mom in December.

Philadelphia Fed president Patrick Harker said that the US economy is “starting 2017 off on a good foot”. He noted that “the labor market is strong, and we’re creating jobs at a good pace.” Besides, “inflation is moving back up to our 2% goal and growth is solid.” And Harker believed that “three modest rate hikes” are “appropriate for the coming year” if the economy stays on track. On the other hand, St. Louis Fed president James Bullard thought that president-elect Donald Trump’s policies will not have much impact this year. And Bullard believed that one hike is appropriate.

Dollar dropped over the board since yesterday as the markets were disappointed by Donald Trump’s first post-election press conference. Lacking details on his pro-growth plan, the theme of his speech centered on the avoidance of conflict of interest between his business and the presidency. The press conference of US President-elect Donald Trump mainly focused on how he would avoid conflict of interest between his businesses and the Presidency, denial of the recently published memos concerning himself and clarification of his relations with Russia. Little was discussed on the details of his pro-growth fiscal stimulus, except confirmation that there would be a “major border tax” on companies that leave the US. Meanwhile, healthcare shares got hammered after Trump blasted that pharmaceutical companies are “getting away with murder” in what they charge the government for medicines. His promise to lower drug spending send healthcare shares lower.

ECB noted in the accounts of the December monetary policy meeting that the decision to extend the asset purchase program by another nine months was for potential political shocks this year. And the central bank warned that “volatility could easily emerge, relating in particular to shocks emanating from the political environment.”While inflation is expected to climb significantly in the coming months due to energy prices, underlying inflation had “failed to show any clear signs of a convincing upturn.” Meanwhile, a few members opposed to the extension “in view of their well-known general skepticism regarding” the program. From Eurozone, industrial production rose 1.5% mom in November.

Daily Pivots: (S1) 1.3100; (P) 1.3196; (R1) 1.3275; More

USD/CAD reaches as low as 1.3134 so far today and decline from 1.3598 extends. The break of 1.3080 completes a double top pattern (1.3588, 1.3598) and indicates reversal. This also supports our view that corrective rise from 1.2460 has completed. Fall from 1.3598 is seen as the third leg of the corrective pattern from 1.4689 and should target 1.2460 low next. On the upside, break of 1.3293 is needed to confirm completion of the fall from 1.3598. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is like finished at 1.3598 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3080 would now likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We’d start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we’ll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Current Account (JPY) Nov 1.80T 1.48T 1.93T
05:00 JPY Eco Watchers Survey: Current Dec 51.4 49.3 48.6
10:00 EUR Eurozone Industrial Production M/M Nov 1.50% 0.50% -0.10% 0.10%
12:30 EUR ECB Monetary Policy Meeting Accounts
13:30 CAD New Housing Price Index M/M Nov 0.20% 0.30% 0.40%
13:30 USD Initial Jobless Claims (JAN 7) 247K 255k 235k 237K
13:30 USD Import Price Index M/M Dec 0.40% 0.70% -0.30%
15:30 USD Natural Gas Storage -49B

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box