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At 8:30:00 AM US Q1 Employment Cost Index (exp 0.9%, prev 0.9%) US Jobless Claims (exp 428k, prev 445k) At 10:00:00 AM US March Chi Fed Nat Act Index (exp n/f, prev 0.04) US March Existing Home Sales (exp 5.6 mln, prev 5.88 mln) US March Help Wanted index (exp n/f, prev 51)
The dollar came under attack from all sides today, beginning with the yen in Tokyo, then against the European majors in London trade. Rumor that Japanese exporters who had not yet filled their dollar sell orders did so ahead of the Golden Week in Japan, taking out key support at 129.20 against the yen. USD/JPY subsequently fell to a 6-week low of 128.57 before stabilizing. Meanwhile, in early European trade, the dollar fell below key support at 1.64 francs to a 4-month low of 1.6300, fueling a rally in EUR/USD through resistance at 89.50 and to a new 3-1/2 month high of 89.86.
Setting the tone for dollar losses were further losses on Wall Street and the National Association of Manufacturers yesterday again asking for an end to the strong dollar. That always put the dollar in a funk and when the OECD released its bi-annual statement today it said that the US was poised to recover but US stock valuations were much to optimistic. Basically, this is what has caused so much dollar malaise over the past two months.
The dollar remains on the defensive for the simple reason that the market is unsure as to where it will get its next strong surge in growth. Yesterday's selloff on Wall Street shows the ongoing concerns about the timing and strength of a US economic rebound. Meanwhile, encouraging signs of growth elsewhere in the world is thought to be enticing capital flows away from the US and towards Europe and Japan.
Not surprisingly, the euro showed little reaction to a worse-than-expected German Ifo survey for April which showed a decline to 90.5 from 91.8, rather than a rise to 92.1. Given that last week's German ZEW survey showed a setback, the Ifo was able to disappoint somewhat without denting the overall EUR/USD bull.
German Finance Minister Hans Eichel said on Thursday a German economic recovery was underway despite a surprise fall in the closely watched Ifo business climate index. Eichel said the German economy would grow 2.5 percent in 2003, but repeated the government expected the economy to grow only around 0.75 percent this year. A sharp fall in tax revenues in January to March reported by the finance ministry on Thursday did not threaten the country's 2002 budget goals, he added.
EUR/USD rose to a day's high of 89.86, above key resistance at 89.50 but shy of the major psychological resistance at 90 cents. Any correction in EUR/USD should hold above 89.45 (61.8% of 89.20 to 89.85) followed by 89.20 and the 89-cent mark. The break above 89.50 today confirmed that the next leg should be up and given the bearish dollar mood, EUR/USD should be able to break 90 cents and target major trendline resistance at 91-cents.
However, current long EUR/USD positions are at the highest level since the post-9/11 attacks, indicating that the euro could be in store for a sharp reversal if the euro cannot rise beyond the key 90-cent mark - a key psychological barrier which could cause the market sentiment to shift the burden of proof to the euro from the dollar. Similar failures above 90 cents have lead to a total liquidation of EUR/USD speculative long positions and a steep fall in the currency.
USD/CHF fell to a 4-month low of 1.6300, down almost one percent on the day after breaking key support overnight at 1.6450, then at 1.64 this morning. Stop loss sales fueled a quick one franc decline. Support is seen at 1.63 followed by 1.6245, 1.6210 and 1.6165, which marks long-term trendline support. This should prove to be a bottom for USD/CHF and a large rally from this level could take hold.
Economic growth in Britain is likely to pick up this year as the world economy recovers but the Bank of England will need to raise interest rates to slow runaway consumer spending, the OECD said on Thursday. But GBP/USD gains were limited as sterling came under further pressure against the euro, falling to 61.88 against the single currency.
Nevertheless, GBP did break above 1.4515, which marks the reaction high hit on January 14, and had proved a formidable barrier. Cable rose to a day's high of 1.4544 before easing back to 1.4520. Therefore, GBP/USD could still target this year's high of 1.4558 but should not rise above trendline resistance at 1.4630. That level should mark an end to the pound's almost 3-month advance from 1.4045 and sterling should then reverse course and target the 1.44 mark ahead the 1.4250/55 level. Technically speaking, any additional longs taken above 1.45 should be met with caution as sterling is expected to be topping in the 1.45-1.4635 area.
USD/JPY outlook remains to the downside after taking out key support at 129.20 today. This was the last key support (61.8% of the 126.32 to 133.82 advance) where major stops were triggered and carried the dollar to a 6-week low of 128.57. USD/JPY has since steadied around a previous support/resistance at 128.60, but the upside remains limited. Only a move above 129.20 followed by 129.65 would improve the outlook. Downside pressure still remains and a break below 128.60 is seen targeting 128.00/10 and 126.85 ahead of this year's low of 126.35.
While the market appears less worried about Japanese posturing, further losses would likely be met by more serious complaints by MoF officials. Today, the MoF's Mizoguchi reiterated that they are closely watching moves in the FX market and that current conditions don't warrant a yen rise.
But further selling pressure might abate if rumors were true that Japanese exporters who had not yet filled their dollar sell orders did so ahead of the Golden Week in Japan, taking out key supports. The Golden Week is a collection of several national holidays within seven days and begins next week. Many companies give additional days free to make the Golden Week a continuous holiday, making it possible that exporters had to sell ahead of the holiday. If this were so, the dollar could rebound back towards 130-131 next week.