Dollar Dropped On Comments From Fed's Bullard

Dollar weakened overnight after St. Louis Fed Bullard warned that FOMC members "have tended to be too optimistic over the last several years," and "caution is warranted in taking policy action based on forecasts alone." He emphasized the need to see "if better macroeconomic growth materializes in the months and quarters ahead, and whether inflation naturally returns toward target." And, he warned that if Fed pull back too quickly, there would be "more downward pressure on inflation and end up with inflation running below 1 percent". And in that case, "deflation possibilities would start to arise." EUR/USD is back pressing 1.33 level as dollar dipped broadly. DOW dropped -113 pts overnight and is pressing 55 days EMA.

New Zealand dollar continues to be the strongest currency this week after data showed business NZ manufacturing index improved to 59.5 in July. Yesterday's retail sales release was also solid with 1.7% qoq growth in Q2. NZD/USD drew support from the channel support from 2011 and turned sideway consolidations. Some more recovery might be seen in near term. But we'd be cautious on strong resistance from 55 weeks EMA (now at 0.8112). We'd expect fall from 0.8675 to resume later after completing the current consolidations.
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Looking ahead, UK retail sales will be a major focus in European session. Near term outlook in EUR/GBP is bearish but price actions are not too decisive for the moment. BoE minutes released yesterday showed that Weale voted against the link of monetary policy to unemployment which raised doubt of the central bank's commitment in this regard. Sterling was also lifted by better than expected job data. UK retail sales is expected to grow 0.6% mom in July. Any upside surprise today would prompt another selling in EUR/GBP.

A number of economic data will be released from US today. CPI is expected to accelerate to 2.0% yoy in July while core CPI is also expected to rise to 1.7% yoy. TIC capital flow, industrial production, NAHB housing market index and Philly Fed survey will be released.