Dollar pares some of its overnight losses and remains in tight range against most major currencies in Asia today. Near term support levels in most pairs are still holding well for the moment and hence, there is generally no change in the anticipation of another round of dollar rally in near term. But the depth of the pull back is dampening the case the bullish a bottom in the greenback in formed and lowered the confidence on this case. Adding to the mix is the yesterday's sharp decline in treasury yield which gave the Japanese yen additional boost. Markets will look into inflation from US today for inspirations on what's next.

Headline CPI in US should have been flat on monthly basis after a sharp +0.7% gain in June. Declines in gasoline and natural gas priced were offset by increase in prices of food core items. On annual basis, the reading probably dropped -2.1% following a -1.4% decline in the previous month. Core inflation is expected to have moderated further to +1.6% yoy from +1.7%. Apparel cost should have plunged after rising sharply in June. Moreover, rent and owners' equivalent rents probably remained soft. Other data to be watched include finalized reading of Eurozone CPI in July, Canadian manufacturing shipments and US industrial production and U of Michigan consumer sentiment.

Aussie was lifted to a new high against dollar by comments from RBA Governor Stevens. In his parliamentary testimony, Stevens said that at some point, the bank will have to make a response to move away from the current "emergency setting" of "extraordinary measures". Stevens did not dismiss the idea that rates are going to be raised before the end of the year and "normal" rates are significantly higher than the current 3.0%. Nevertheless, the strength of Aussie was apparently limited by another day of decline in Shanghai stocks markets.

Looking at the dollar index, while the fall from 79.39 was deep, we're still favoring that it's a correction only and expects downside to be contained by 78.14 support. Above 78.80 minor resistance will flip intraday bias back to the upside for 79.39 next. As noted before, break of 79.66 resistance will solidify the case that whole fall from March high of 89.62 has completed with five waves down to 77.43 already. However decisive break of 78.14 will dampen this view and indicates that the down trend in dollar index is possibly not over yet.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.8349; (P) 0.8401; (R1) 0.8483;

AUD/USD edges to new high of 0.8476 earlier today and further rally might still be seen with 0.8366 minor support intact. Nevertheless, we still believe upside potential is limited and will continue to look for reversal signal as AUD/USD hits 0.8519 key resistance. On the downside, below 0.8366 minor support will flip intraday bias back to the downside for a test of 0.8179 support next. Break there will indicate that whole rise from 0.7702 has completed and will turn short term outlook bearish.

In the bigger picture, there is no change in the broader view that price actions from 0.6008 are correction to down trend form 0.9849 only. Rise from 0.6284 is the last leg and should be near to completion. Upside is expected to be limited by 0.8382/8519 resistance zone and finally bring reversal. Break of medium term rising trend line (now at 0.8066) will indicate that such correction has completed and further break of 0.7702 support will confirm. However, note that sustained trading above 0.8519 resistance will argue that whole rise from 0.6008 is possibly developing into a new trend and will open up the prospect of a retest on 0.9849 (08 High).