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At 8:30:00 AM US Dec Imports (exp 90 bln, prev 90.2 bln) US Dec Exports (exp 55.5 bln, prev 56.2 bln) US Dec Trade Balance (exp -28.2 bln, prev -27.8 bln) US Jobless Claims (exp 385k, prev 373k) At 10:00:00 AM US Jan Leading Indicators (exp 0.5%, prev 1.2%) At 12:00:00 PM US Feb Phil. Fed Survey (exp 12.9, prev 14.7)
The dollar edged higher against the European majors and held its gains against the yen this morning. However, dealers expressed nervousness about going long the dollar after two tumultuous days on Wall Street that whipsawed the greenback back and forth. Wednesday's recovery in US equities helped the dollar regain investor confidence.
But key data from the US today could undermine any further dollar gains.
EUR/USD fell to a 2-day low of to 86.84, but failed to target support at 86.60/50. Dealers warn that action is becoming increasingly volatile and directionless, but gains and losses are seen tracking Wall Street carefully. Therefore, most dealers see the recent EUR/USD rebound as a further correction from its bear trend since September. This reflects the view that US equity losses are also a temporary phenomenon. But despite Enronitis gripping the market for over a month now, it remains the main story on the Street.
Therefore, EUR/USD could stage another recovery given Japan's economic woes and Wall Street's accounting concerns. While some traders expect a pullback towards 86.50, others see the possibility of a run towards 87.50 88.00, 88.60 and even 88.80. But if the pair was to fail breaking the last resistance zone, it could resume its downtrend from there.
The dollar rose to a day's high of 134.04 yen today while EUR/USD languished around a low of 116.07 until rebounding to a day's high of 116.74 and carrying EUR/USD back above 87-cents. So, also watch the EUR/JPY cross for its divergence from USD/JPY (since USD/JPY gains are seen capped at 135) where a move higher could boost EUR/USD.
Weighing on the euro today was a surprise 0.4% fall in French consumer spending in January which sent the yearly rate to 1.2% from 3.8% and pushed the euro to a day's low of 86.84. Meanwhile, mixed data from Italy had little effect on the market. Italy's December industrial sales rose 0.3% m/m, but fell an unadjusted 6.8% y/y in 2001. Industrial orders also fell 3.5% y/y. Italian cities reported preliminary consumer price inflation data for February up 2.5% y/y from 2.4%.
Data from the UK also dragged GBP/USD below yesterday's low of 1.4261 after back to back surprise declines in UK retail sales surprised dealers. Retail sales fell for the second month in January, down 0.3% m/m to bring the yearly rate down to 4.2%. GBP/USD fell to a day's low of 1.4237, just above key support at 1.4235. Dealers realized this was the first time retail sales had fallen two consecutive months since 1998. The drop left some wondering if sales which peaked at 7% annually in November are now going to level off as the Bank of England had hoped. This would put off future interest rate hikes and weigh on the pound.
EUR/GBP also rose on sterling weakness to a day's high of 61.17. But, the EMU debate had little effect on sterling today as the market comes to grips with PM Blair's commitment to a referendum and the Chancellor Brown's skepticism.
Meanwhile, USD/JPY kept within a133.50 to 134.00 range today after a brief rally to 134.04 after Former Japanese Finance Minister Sakakibara, aka Mr. Yen reiterated today his belief that the dollar could reach 150-160 yen towards year end. Sakakibara says Japan is in a state of economic crisis and this could spread to the financial sector soon. USD/JPY then eased back towards support at 133.40/50. Resistance is seen at 133.70, 134.00 and 135.00. Support is seen at 133.40, 133.00, 132.65 and 132.35.
Sakakibara's view is widely held by the markets and reflects a growing unease with Japan's lax position towards reform and their inability to come up with a coherent plan that tackles deflation and the financial sector. Markets grew weary with Japanese rhetoric on Tuesday after listening intently last week to a number of assurances to shore up the financial system and tackle deflation. The market was also disappointed by Japan's shying away on the injection of public funds into the troubled banking sector. Even though the yen fell, the Nikkei jumped 4.7% today on hopes that corporations would continue to write off bad debt and that the government would combat deflation.
Dealers are likely to remain on the sideline ahead of important economic news from the US later in the day and will keep eyes glued to Wall Street's performance. Weekly jobless claims due at 8:30 AM are expected to be unchanged from the previous week at 373,000, while January lead indicators, due at 10:00 AM, are forecast to rise 0.5% from 1.2% last month. Markets will also focus on today's US international trade balance, which is expected to widen to -28.3 billion in December from the previous deficit of 27.8 billion as sluggish global demand takes its toll on US exports.
But today's key data is the Philadelphia Fed survey of manufacturing activity for February, which is expected to decline to 13.0 from the previous 14.7. Yet, improvements in the NAPM component could be a boost.