Mid-Day Report: Canadian Dollar Steady after CPI, Markets Consolidate

Canadian dollar remains bounded in tight range after release of June consumer inflation data. CPI accelerated back to 1.2% yoy but missed expectation of 1.3% yoy. Core CPI also accelerated back to 1.3% yoy, meeting consensus. Both figures were well below BoC's 2% target. Stephen Poloz had his first BoC rate announcement earlier this week and noted in the statement that current monetary stance should remain appropriate "as long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively". With the current inflation outlook, it's believed that BoC is still far from kicking start the normalization of monetary policies. Technically, note that USD/CAD is still maintaining a higher high, higher low pattern since last August. And it's drawing support from 55 days EMA for the moment. There is no change in the bullish outlook yet and another high above 1.0608 is anticipated after completing recent consolidations.

Elsewhere, dollar remains generally soft except versus yen. Bernanke's testimony earlier this didn't trigger another round of selloff in the greenback, there is no strength for rebound neither. Yesterday, Moody's raised the outlook of US' triple A credit rating to stable from negative, citing the country's recovery is "progressing at a faster rate compared with several Aaa peers and has demonstrated a degree of resilience to major reductions in the growth of government spending". The rating agency indicated confidence that there have been "enough information on the debt trajectory at this point to make a conclusion even without information on any possible further actions in Washington". Moody's also believed that the possible raise in the debt ceiling by the government would not affect the rating as the measure would unlikely affect "the government's ability to service its debt".

Yen remains soft ahead of Sunday's upper house election in Japan. The ruling LDP is expected to have a landslide victory, would enable Prime Minister Abe to continue with his three arrows of Abenomics, monetary stimulus, fiscal spending and structural reform. Yen crosses could extend recent rebound in near term. But in general, we're expecting strong resistance from May's highs to limit upside to bring reversal to extend recent consolidation. There shouldn't be enough selling momentum in yen unless Abe announce something more drastic.

Elsewhere, UK public sector net borrowing dropped to GBP 10.2b in June. German PPI rose to 0.6% yoy in June. Japan all industry index rose 1.1% mom in May.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 99.69; (P) 100.17; (R1)100.89; More..

Intraday bias in USD/JPY remains on the upside and recovery from 98.18 should extend higher. Break of 101.53 will resume the whole rebound from 93.78. But still, such rebound is viewed as the second leg of the consolidation from 103.73. Thus, we'd be cautious on strong resistance below 103.73 to bring reversal. Meanwhile, below 98.89 will turn bias back to the downside for 98.18 and below.

In the bigger picture, USD/JPY made a top at 103.73 and turned into consolidations. Some more sideway trading would be seen below 103.73. In case of another fall, downside will likely be contained by 92.56 support and bring rebound. Rise from 103.73 is expected to resume after the consolidation.

IMOH, Clement I.
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