Dollar Lower Against Euro as Durable Goods Disappointed

Dollar weakens in early US session as data disappointed again. Headline durable goods orders dropped for the second month in September, by -1.3% versus expectation of 0.3% growth, with prior month’s figure revised down from -18.2% to -18.4%. Ex-transport orders also dropped -0.2% versus expectation of 0.5% growth, with prior month’s figure revised down from 0.7% to 0.4%. Technically, it looks like dollar index’s recovery from 84.47 has finished at 85.93 and it could now spiral back towards 55 days EMA (now at 84.34). The bigger test is tomorrow’s FOMC rate decision and focus is on whether Fed would hint on the timing of the highly anticipated first rate hike. But in any case, we’d most likely see more consolidation below 86.74 high in near term.

ECB chief economist Peter Praet said that the risk of deflation in Eurozone was “limited”. He also expressed his “issues with the high probability” the IMF put forward, that is 30%. Praet said ECB’s models gave much lower numbers. Nonetheless, he admitted that “a prolonged period of low inflation harbors the risk that an economic shock may trigger negative inflation”. Regarding growth, he noted that it’s “rather worrying” due to lack of momentum for self-sustaining growth. Overall, he noted the ECB were very clear on two messages “we are planning a significant liquidity injection and we are keeping a close watch on the situation.” Released from Eurozone, German import price index rose 0.3% mom in September versus expectation of -0.1%.

Release from Japan retail sales rose 2.3% yoy in September versus expectation of 1.0%. The Japanese yen is so far the better performer today, following strength in equities. At the time of writing, DAX is up 1.4%, FTSE up 0.5% and CAC up 0.45%. US futures point to higher open but could be weighed down mildly on data disappointment.

USD/CHF Mid-Day Outlook

USD/CHF’s dip from 0.9559 extends today and the current development suggests that correction from 0.9688 might extend lower. But we maintained our view to have strong support inside 0.9300/9395 support zone to complete the correction and bring rebound. Above 0.9559 will now turn bias to the upside for retesting 0.9688. Break will extend that larger rise from 0.8698 towards 0.9838/9971 key resistance zone. However, break of 0.9300 will bring deeper fall back to 61.8% retracement of 0.8855 to 0.9688 at 0.9173.

In the bigger picture, price actions from 0.9971 are viewed as a medium term correction pattern and should have completed with three waves down to 0.8698. Rise from 0.8698 should target a test on 0.9971 high first. Decisive break there will extend the whole long term rise from 0.7065 and target 61.8% projection of 0.7065 to 0.9971 from 0.8698 at 1.0494 next. We’ll hold on to this bullish view as long as 0.9300 support holds.