www.forexnews.com
At 8:30:00 AM US March PPI m/m (exp 0.6%, prev 0.2%) US March PPI m/m ex food/energy (exp 0.1%, prev 0%) US March PPI y/y (exp n/f, prev -2.6%) US March Retail Sales m/m (exp 0.4%, prev 0.3%) US March Retail Sales m/m ex auto (exp 0.4%, prev 0.2%) US March Retail Sales y/y (exp n/f, prev 2.9%) At 9:45:00 AM US April Univ. of Michigan Prel. Sent. (exp 96.8, prev 95.7)
This morning's resignation in of Venezuela's President Chavez had little impact on the currency markets but should help stabilize the price of oil after Iraq's export embargo and Venezuelan instability had fostered worries about the supply of oil and kept prices high on the spot market this week. Venezuela is the fourth largest foreign supplier of crude oil and a member of OPEC. Its proximity to US refineries also makes it a strategic source of crude oil for the U.S. Therefore, while the events haven't fully played out, a return to normalcy in Venezuela removes a certain amount of uncertainty which has weighed on the dollar in recent weeks.
Oil prices fell after the news that Chavez agreed to resign today, sending US light crude down half a cent to $24.46, as traders anticipated an end to 6-week old protests and one-week old strikes which had disrupted supply. Oil prices are now well below the $28 highs reached last week, but still pricing in a considerable $5 war premium. Therefore, FX dealers will keep a sharp eye on Middle East developments as US Sec State Powell begins talks with Israel today, despite their continued operations in the West Bank and detention of Arafat.
The dollar added to overnight gains against the Swiss franc, one of the main safe haven winners during most of the violence in the Mideast. USD/CHF rose to a day's high of 1.6663, up from overnight lows of 1.6560, but still below key support/resistance at 1.6660. Therefore, anticipate further losses unless the dollar can maintain above 1.6660 and target the 1.6700/10 area. Failure to do so should result in a test of support at 1.6615 and a break would target this month's low of 1.6516.
EUR/USD also slipped back to a day's low of 87.96 as the pair continues to tread along trendline resistance at 88.10 after falling back from an overnight high of 88.44. From a technical perspective, as long as support at 87.75 holds, the next move should be higher. This level marks the 61.8% retracement of the one-cent rise from 87.34 to 88.44 overnight. However, looking ahead, heavy resistance is seen in the 87.50/80 region, which will be tough to break as the 200-day moving average lies at 87.80. This will be an obvious area for short term speculators to take profits. Meanwhile, only a move through support at 87.75, 87.50 and ultimately 87.00 which would change the bullish outlook for the euro and provoke a bout of selling due to the large amount of long positioning still built up in the market.
Today's data from the Eurozone showed better than expected industrial production data from France, but also higher inflation. While the manufacturing sector world wide is showing signs of improvement, the rising oil prices will be a thorn in the side to the European Central Bank which has already warned of the negative drawbacks to slow labor market reform and high wage demands.
The market showed little reaction to today's data and is seen on hold ahead of key US retail sales and consumer confidence data later in the day. US retail sales are supposed to rise 0.4% in March and will be closely watched for evidence on the robustness of the much talked about US economic recovery. Consumer confidence data will also help determine if the US economy remains on track or if the recent fall in the dollar is justified. That survey is expected to rise to 96.8 in April from 95.7. Robust data may help the dollar, but the euro and sterling are both holding strong and appear likely to add to their gains in the near term as the dollar has too much uncertainty on its hands for the moment. Key will be how Wall Street reacts today after Thursday's harsh sell off.
GBP/USD broke back below support at 1.4360 after failing to rise above 1.44 overnight. A slip below 1.4360/50 should retest overnight lows around 1.4335 and below that at 1.4285. Sterling slipped after hitting a one-week high of 1.4400 overnight as it was unable to maintain above key support at 1.4387 which would have put last week's reaction high of 1.4429 in sight and open the door for a run at 1.45. Nevertheless, the upward trend continues and GBP/USD could hit 1.45 before becoming heavy again. Only a break below support at 1.4340/30 would target 1.4284 low. But only a fall below 1.4200 would be a sign that the bear had taken back hold over the pair.
Meanwhile, USD/JPY hovered in a tight range around 132.00-132.25 after its 2-yen rally stopped today around a one-week high of 132.26. The dollar is holding above 131.98, the 50% retracement of last week's decline from 133.80 to 130.20, but remains below the 61.8% retracement at 132.40. Nascent signs of large Japanese investment outflows in the new fiscal year helped the yen lower today, but the pair could trade rangebound between 130.20 and 133.80 in the near-term. Support is seen at 131.45/55 and 131.20 ahead of 130.95 the Fibonacci retracements of the move from 130.20 to 132.26.
Only a break below 130.95 would be problematic for the renewed bull stance on USD/JPY, but by acting when they did, the Ministry of Finance has put a psychological cap on the yen around 130. Official comments this week cemented views that the authorities would not want the dollar to fall under the 130.00 yen level because it could damage the one bright spot of the economy - exporting. Traders have pared back long USD/JPY positions since the beginning of the month when Japanese capital outflow was not detected. But dealers now would not want to test the authorities, so the dollar should remain well supported above 130, but remain under 133.80 highs. The Bank of Japan raised its economic assessment for a second consecutive month today but the yen continued to fall across the board. Telling in the bank's review was that it cited a recovery abroad and weaker yen to keep lifting exports and the ailing economy. But it also said that Japan's economy continues to deteriorate. Therefore, traders have poured in to sell the yen again after a brief rise to 130.20 this week sent Japanese officials clamoring to talk down their currency, which they see as vital to a recovery.