Mid-Day Report: Dollar Mildly Lower as GDP Disappoints, But Stays in Range

Dollar is seen mildly weaker in early US session after data showed Q3 GDP growth missed expectation. The US economy grew at 2% annualized rate in Q3, at faster pace comparing to finalized reading of 1.7% in Q2. However, that was slightly below market expectation of 2.2%. GDP Price index rose 2.3% versus expectation of 1.9%. Employment cost index rose 0.4% versus expectation of 0.5%. The data does little to change the view that Fed will expand the QE program next week while the scale remains an unknown. Some volatility might be seen in dollar as the week closes but the greenback will likely stay in range as dust settles. Also just released, Canada GDP rose 0.3% mom in August. IPPI rose 0.2% mom while RMPI dropped -0.4% mom in September.

EU leaders agreed to create and implement a permanent system to tackle sovereign debt problems and endorsed tougher sanctions on states that do not keep their deficits and debt in check. The details will be reverted to in December with “a view to taking the final decision both on the outline of a crisis mechanism and on a limited treaty amendment so that any change can be ratified at the latest by mid-2013.” The mechanism aims to safeguard the financial stability of the euro zone as a whole. Nevertheless, German Chancellor Merkel’s call for suspending voting rights of member states which breach the rules failed to win support. Markets’ reaction is muted for the moment as traders minds are on FOMC’s QE II announcement. But focus would probably turn back to European debt problems after next week.

Data released from Eurozone saw unemployment rate unchanged at 10.1% in September, highest level in more than 12 years. Though, flash CPI beat expectation and unexpectedly rose to 1.9% yoy in September. Swiss KOF leading indicator dropped to 2.17 in October. A bunch of economic data was released from Japan today. Manufacturing PMI dropped further to 47.2 in October. Industrial production dropped more than expected by -1.9% mom in September. Both suggest weakness in the manufacturing sector. National CPI core deteriorated further to -1.1% yoy in September indicating persistent deflation. Though, Tokyo core CPI improved to -0.5% yoy in October. Housing spending was flat yoy in September while housing starts rose 17.7% yoy. Unemployment rated dropped to 5.0% in September. UK Gfk consumer sentiment rose to -19 in October. One point to note is that New Zealand dollar has been strong against Aussie today. New Zealand trade deficit widened to NZD -532M in September, thanks to strong imports of cars and machinery. The data suggests improved domestic demand, which may stock economic growth in Q4. Meanwhile, Exports also rose for the first time in four months on demand from China and other Asian countries.

Daily Pivots: (S1) 0.9788; (P) 0.9848; (R1) 0.9892; More.

USD/CHF’s recovery is limited below 0.9929 resistance and intraday bias remains neutral for the moment. More consolidations would be seen with risk of another dip. But still, rebound from 0.9462 is expected to continue as long as 0.9662 support holds. Above 0.9929 will target 0.9932/1.0181 resistance zone next. Though, break of 0.9662 minor support will suggest that rebound from 0.9462 is finished and flip bias back to the downside for retesting 0.9462 low first.

In the bigger picture, as noted before, the sustained break of 0.9634 low indicates that long term down trend from 2000 high of 1.8305 is resuming. While USD/CHF has made a short term bottom at 0.9462, there is no indication of medium term reversal yet. Outlook will stay bearish as long as 1.0330 cluster resistance holds (38.2% retracement of 1.1729 to 0.9462 at 1.0328). The long term down trend is still in favor to continue towards 61.8% projection of 1.8305 to 1.1288 from 1.3283 at 0.8946, which is close to 0.9 psychological level.

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