Mid-Day Report: Dollar Extends Rebound after Retail Sales

Dollar's rebound resumes in early US session after release of a solid retail sales report. Headline sales rose for the fourth consecutive month by 0.2% in July. While that was slightly below expectation of 0.3%, it's offset by upward revision in June's figure from 0.4% to 0.6%. Ex-auto sales rose for the third straight month, and beat expectation of 0.4%. June's figure was revised up from 0% to 0.1%. Also released from US, import price index rose 0.2% mom in July, below expectation of 0.8% mom. EUR/USD is finally moving away from 1.33 level and is set to revisit 1.3182 minor support. Meanwhile, USD/JPY took out 97.58 minor resistance today, helped by broad based selling in yen.

Despite an intraday dip, EUR/GBP is still struggling around 0.8581 key near term support after economic data release from Eurozone and UK. German ZEW economic sentiment jumped to five month high of 42.0 in August and beat expectation of 39.9. Current situation gauge improved to 12.0. Eurozone ZEW also improved to 44.0 and beat expectation of 37.4. ZEW note that "first signs of an end to the recession in important euro-zone countries may have contributed to the indicator's rise. This is also reflected by the strong increase of economic expectations for the euro zone. Furthermore, the economic optimism is supported by the robust domestic demand in Germany."

In UK, CPI dropped to 2.9% yoy in July as expected while core CPI moderated to 2.0% yoy versus consensus of 2.0%. RPI dropped slightly more than expected to 3.1% yoy. PPI input dropped to 5.0% yoy versus expectation of 5.5% yoy, output rose to 2.1% yoy inline with consensus. RICS house price balance improved more than expected to 36 in July. Focus will turn to tomorrow's UK job data and BoE minutes.

Yen weakens broadly today as Nikkei rises 347.57 points on news that prime minister Abe is considering a corporate tax cut to offset the impact of the planned sales tax hike. The news came after Japanese GDP report released yesterday which showed weaker than expected growth of 0.6% qoq in Q2. The data prompted speculation that Abe could delay or even reconsider the two staged increase in sales tax. But it seems that Abe considering another way to ease the burden on the economy. Technically, near term outlook in USD/JPY, EUR/JPY and GBP/JPY turned mildly bullish on break of minor resistance levels.

Aussie weakens mildly today as NAB business confidence dropped to -3 in July. NAB chief economist noted that sentiments remained "extremely poor" in mining industry in spite of recent depreciation in the currency and RBA rate cut. The final budget update before election confirmed a deficit of AUD 30.1b in 2013/14 fiscal year. The so called Pre-election Economic and Fiscal Outlook noted that "against the backdrop of a still-challenging global outlook, the Australian economy is expected to transition away from resource investment-led growth towards broader-based growth". But it warned that the transition "may not occur as smoothly as forecast".

IMOH, Clement I.
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