The dollar continues to gain on Tuesday, following data that showed U.S. housing starts rose to an almost eight-year high in July. The Commerce Department reported that housing starts rose 0.2% to an annual pace of 1.21 million units, the highest level since October 2007. Building permits fell 16.3% in July, but that was after three consecutive months of strong gains. The strong data creates a positive outlook for 3rd quarter growth and turns the focus now on Wednesday’s minutes of the Federal Reserve’s July meeting, which is expected to provide more clarity on Fed plans to increase interest rates for the first time since 2006. The euro fell to session lows, with EUR/USD down 0.36% while the pound was boosted by expectations for higher interest rates. The dollar dropped against the safe haven yen and the Swiss franc earlier on Tuesday after a sharp drop in Chinese stocks, which raised concerns on further measures to counter the drop. The threat of slowing growth China and the fear of further devaluation in the yuan send the main U.S. indices into negative territory on Tuesday. For today the U.S. is to release data on consumer inflation while later in the day, the Federal Reserve is to publish the minutes of its July monetary policy meeting.
EUR/USD
The euro continues to lose ground against the dollar on Tuesday, with the EUR/USD dropping by roughly 0.50%, following the strong data from the Commerce Department showing that housing starts rose to the highest level since October 2007 and ahead of the release of the Federal Open Market Committee's minutes from its July meeting on Wednesday afternoon. The rise in the dollar was limited by building permits data which fell by 16.3% in July, but that was after three consecutive months of strong gains. Traders appear to be abandoning their long positions in the euro, hours before the Fed minutes are made public on Wednesday afternoon. For today the U.S. is due to release data on consumer inflation, however, the highlight of the day is the FOMC minutes of the Fed’s July meeting for any hints on plans to raise interest rates in the September meeting.
Pivot: 1.1095Support: 1.1015 1.098 1.094Resistance: 1.1095 1.1125 1.1165Scenario 1: Short positions below 1.1095 with targets @ 1.1015 & 1.098 in extension.Scenario 2: Above 1.1095 look for further upside with 1.1125 & 1.1165 as targets.Comment: Even though a continuation of the technical rebound cannot be ruled out, its extent should be limited.
Oil
Crude oil prices posted a sharp recovery on Tuesday, after touching new lows earlier in the day, following data from the API showing that inventories dropped by 2.3 million barrels last week, more than the 2.0 million barrel drop expected. However, crude inventories nationwide remain at their highest level at this time of year in at least 80 years. Energy traders continue to monitor developments in China, one of the biggest crude oil buyers, as a recent drop in Chinese stocks raises concerns regarding further devaluations in the yuan, something that could affect oil demand considerably. For today, comments from the FOMC meeting will be in focus while the government report from the U.S. Energy Information Administration could show that U.S. crude inventories fell by 1.6 million barrels for the week that ended on August 14.
Pivot: 42.7Support: 41.33 40.9 40.4Resistance: 42.7 43 43.85Scenario 1: Short positions below 42.7 with targets @ 41.33 & 40.9 in extension.Scenario 2: Above 42.7 look for further upside with 43 & 43.85 as targets.Comment: As long as 42.7 is resistance, likely decline to 41.33.
Dow Jones
Worries over China's economic health returned on Tuesday pressuring Wall Street even as U.S. data on the housing sector indicated a strong recovery. The S&P 500 was down 0.26%, the Dow Jones Industrial Average slipped 0.19%, and the Nasdaq fell 0.63%. Following a drop of more than 6% in China's Shanghai Composite index, despite the People's Bank of China's efforts to prevent capital outflows. The Chinese central bank injected 120 billion yuan ($18.8 billion) into the market in its biggest one-day injection in the last year-and-a-half. The threat of slowing growth in the world's second-largest economy hurt stocks on basic materials on Tuesday. Freeport-McMoRan, Dow Chemical, and Alcoa (NYSE:AA) were among the worst performers of the session. For today the U.S. is due to release data on consumer inflation while the main focus is shifted on the FOMC minutes of July’s meeting for any hints on the timing of the long awaited U.S. rate hike.
Pivot: 18350 Support: 17040 16820 16550 Resistance: 18350 18650 18900 Scenario 1: Short positions below 18350 with targets @ 17040 & 16820 in extension. Scenario 2: Above 18350 look for further upside with 18650 & 18900 as targets. Comment: The RSI is capped by a declining trend line.