Daily Report: Doll Recovery Lacks Momentum, Sterling Still the Weakest

Dollar recovered yesterday on the back of sharp retreat in crude oil touching 75 level. Nevertheless, the momentum is so far mild and the greenback is still likely to extend recent fall against Euro. Yen is still staying in range even though stocks in developed markets continue to extend rally. Nikkei made new high at 10668 before closing at 10639, following new high of 9620 in DOW. The impact of stocks was somewhat counted by falling treasury yield which might have completed brief recovery earlier this week already. We'd continue to favor some more downside in yen crosses together with treasury yield. Sterling remains one of the weakest currency this week and is vulnerable against euro and Swissy. Looking at GBP/CHF, yesterday's break of 1.7388 support suggests that a double top reversal pattern is formed (1.8111, 1.8087). The three wave corrective rise from 1.5111 bottom might have completed too and we'd be looking at the prospect of at least some near term fall to 1.6620 cluster support (50% retracement of 1.5111 to 1.8111). EUR/GBP's rise from 0.8399 was confirmed to have resumed for 0.8866 resistance. Meanwhile, GBP/JPY is also trying to get rid of 153.43 support to resume fall from 163.05. After all, we'd expect to pound to continue to under perform other major currencies.

Released overnight, Japanese trade surplus shrank more than expected to 0.19T yen in July while Corporate services price index dropped more than expected by -3.4% yoy. German import price dropped slightly more than expected by -0.9% mom, -12.6% yoy. Focus will turn to German Ifo, US durables and new homes sales. In addition, crude oil inventories, which is expected to show -2.1M drop, will probably trigger some volatility in crude oil as well as dollar.

Looking at the dollar index, consolidation from 77.76 is still in progress. While some more upside might be seen, short term outlook remains bearish as long as 78.67 minor resistance holds. The current fall from 79.51 is possibly resuming whole decline from March high of 89.62 and might extend further to 77.43 and below. Nevertheless, strong support is expected above 75.89 key medium term level that finally bring reversal to conclude whole fall from 89.62 as well as medium term consolidation from 88.46. Break of 78.67 will be an important sign of stabilization and turn short term outlook neutral while break of 79.51 will revive the case that the index has already bottomed out at 77.43 already.