Dollar falls sharply in US session as markets sentiments are given a strong boost by housing data from US. Pending home sales rose a record 10% in October versus consensus of a -1% fall. The data raised optimism that housing market's recovery in gaining some momentum thanks to low mortgage rates and income growth. Initial jobless claims rose to 436k but was ignored by the markets. Banks and home builder stocks soar in Wall Street and sends DOW 1% higher at the time of writing. Risk appetite than in turn pressures the greenback. Aussie and Loonie are both strong on rally in commodities.
As expected, the ECB left the main refinancing rate unchanged at 1%. Moreover, the central bank delayed exit of non-standard measures and continued to keep providing unlimited liquidity to the market through 1Q11. The euro and bond markets rallied ahead of the meeting amid speculations that the central bank will purchase peripheral debts. However, President Trichet declined to comment on the issue but mentioned that 'the Securities Market Program (SMP) is ongoing, I repeat - ongoing'.
Other data released today saw Eurozone Q3 GDP unrevised at 0.4% qoq, 1.9% yoy. PPI rose by 0.4% mom, 4.4 yoy in October. UK PMI construction unexpectedly rose to 51.8 in November but provided no support to Sterling. Swiss GDP rose 0.7% qoq, 3.0% yoy in Q3 while retail sales rose 3.5% yoy in October. Australian trade surplus widened more than expected to AUD 2.63b in October but retail sales disappointed and contracted by -1.1% mom. Japan monetary base rose 7.6% yoy in November while capital spending rose 5.0% in Q3.
Technically, stocks and commodities are both strong. DOW's pullback finished earlier this week and subsequent strong rally should be resuming the medium term up trend for another high above 11451, probably to 61.8% projection level at 11865 in near term. Similarly, the CRB commodity index is set to take out 320.35 resistance, possibly taking crude oil through 90 psychological level with it. Nevertheless, the current rise in both indices look like the fifth wave in respective five wave sequences from 9614 and 247.25 respectively. We'd anticipate sharp some sizeable correction after the current rally.
Dollar index's pull back from 81.44 extends further today but with 79.46 support intact, outlook remains bullish. That is, whole rise from 75.63 is still expected to develop into a multi month rally that will eventually target 87/88 level. However, break of 79.46 will argue that rebound from 75.63 is finished and leave it with a three wave corrective structure. That is, in such case, rise from 75.63 is merely a correction to fall fro 88.70 only. The critical factor will be on whether stocks and commodities (that is, risk appetite) will peak and reverse after the current rise or they would extend beyond our expectations.
source: www.actionforex.com
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