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USD extends its rally - BTMU

FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, remarks the USD upside momentum ahead of the FOMC minutes.

Key Quotes

"Upward trend resumes after stalling during the first half of August The US dollar has continued to strengthen in the Asian trading session leading to USD/JPY breaking above the top of its recent tight trading range between 101.00 and 103.00. US dollar upward momentum resumed yesterday with the dollar index rising to its highest level since the 9th September 2013 after finally breaking decisively above resistance at around the 81.50-level."

"The US dollar is continuing to derive support from the ongoing outperformance of the US economy in the near-term which appears to be strengthening while growth in most other major economies is losing momentum. It was revealed yesterday that both housing starts and building permits rebounded by more than expected in July providing further evidence that the US housing market is beginning to rebound after weakness in the first half of this year. Still, the underlying trend in housing starts remains one of only very gradual improvement while permits have flat-lined so far during 2014."

"The release yesterday of the latest US CPI report also revealed that inflation pressures have eased over the last couple of months. Core inflation increased for the second consecutive month by just 0.1% in July."

"It supports Fed Chair Yellen’s view that the pick-up in inflation in the first five months of this year may prove to be just “noise” with underlying inflation pressures still subdued. As a result the Fed is likely to feel more comfortable to maintain its current loose monetary stance for longer which will help dampen upward pressure on US yields and the US dollar from strengthening economic growth momentum in the US."

"It leaves us a little cautious about chasing further US dollar gains in the near-term ahead of Fed Chair Yellen’s speech at Jackson Hole on Friday. Before that the release of the latest FOMC minutes from their 29th-30th July meeting will be in focus today. We do not expect a more detailed discussion of the Fed’s expect strategy until later this year after the Fed has brought an end to QE in the autumn."

United States MBA Mortgage Applications rose from previous -2.7% to 1.4% in August 15

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