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At 8:30:00 AM US March Personal Income (exp 0.4%, prev 0.6%) US March Personal Consumption (exp 0.4%, prev 0.6%)
The dollar hit a new year low against each of the majors today except the euro. However, EUR/USD did break key technical resistance at 90.37 and has its year high of 90.63 in its sights. Further dollar weakness at this level is expected because momentum is with the bears. The dollar is currently testing key technical levels at 127.75 yen, 1.4635 against the pound and 1.6180 against the Swiss franc, which if they were to give, would trigger stop loss sales exacerbating the recent downtrend.
The concern centers on whether current market trends (falling stock market, foreigners diversifying away from the US, rising oil, MidEast uncertainty) will continue and upset the outlook for a strong recovery. Clearly, this week's data will hardly support the dollar and Wednesday's US Senate meeting with Treasury Secretary O'Neill will put the US strong dollar policy in the hot seat and likely lead some to question its sustainability.
This year's Trade and Competitiveness hearing on May 1 will add to the negative sentiment already surrounding the dollar because manufacturers will emphasize the market's growing concerns over US trade policies and the current account deficit, which are directly related to the dollar's strength. This will only increase current anxiety surrounding the dollar and put it under further near-term pressure.
Moreover, the stock bear market that is still in effect will force dealers to look for whether the next significant move is up or down. Be advised that stocks could continue to trend lower from current levels in the next few months because momentum remains to the downside, stock valuations are too high, and earnings estimates are still too high for most investors.
Despite an incredible 5.8% rise in Q1 GDP on Friday, sentiment remains bearish after the S&P fell 4.5% in its worst weekly performance since last September. The negative reaction to positive US data shows the market remains apprehensive about final sales and business investment. Until a marked improvement is seen, the dollar could continue its slide. About the only bullish indicator for the dollar right now is the adage that when public sentiment is at key low points, it often signals a turning point. Truly, the dollar is at a pivotal point with key stop loss levels needing to be defended this week for a halt to recent losses.
EUR/USD broke its first target of 90.37 (61.8% of 93.35 to 85.63) in London trade and rose to a new 3-1/2 month high of 90.45 in as European dealers again went gunning for the dollar just as they have in recent sessions. A top around 90.45 appears to have developed constraining the short term upside, but a retracement here is likely to hold above 90.20. From this point, the euro should target this year's high of 90.63 and key downtrend resistance at 91.05/10 but should then consolidate as this could prove a formidable barrier to further gains. Therefore keep focused on the upside until this target is at least met.
However, remain vigilant about downtrend resistance at 91.05/10. Reasons for apprehension are (1) Highest net long position in weekly IMM euro futures ever at 29,623; (2) In each of the last 3 occasions in which EUR/USD breached above the 200 day MA, the pair went on to rally by an average of 2.0% before heading down again; (3) The 90.50-90.80 region has often acted as a resistance; January 2, December 17, April 4 and 20, Aug 25 2000; (4) Each time the euro makes it above the key 90-cent threshold, market sentiment shifts the burden from the dollar to the euro.
USD/CHF broke briefly below long-term trendline support at 1.6180 to hit a near 6-month low of 1.6175 before bouncing higher. A close below 1.6180 would be a bearish signal to traders and further weigh on the dollar against the other EuroFX. Upside seen limited at 1.6250 and 1.6345.
GBP/USD hit a new 5.5 month high at 1.4635, dead on trendline support before retracing back to support around 1.4600. A break of 1.4635 seen targeting 1.4710, 1.4750 and 1.4775. Support is seen at 1.4560, 1.4530/35 and 1.4505. A break of 1.4600 followed by 1.4560 would be the first indication of a reversal unfolding.
USD/JPY fell below key hovered around key support at 127.75 today after slipping to a new 7-week low of 127.65 in early European trade. The dollar has been in a two-yen-wide downchannel for the past month and is now targeting its March 7 low of 126.32. Key support at 127.75 needs to hold in order to prevent a further rapid decline given the only noticeable support is seen at 126.85 ahead of 126.32.
Given that current weakness in USD/JPY is mainly a dollar story, bears have been emboldened to test the downside despite official warnings from Japanese officials. Dollar weakness means that despite their wish for a stronger USD/JPY rate, the yen remains weak on a trade weighted basis and above early April lows around 114.50 against the euro. To avoid further downside pressure, the dollar needs to overcome resistance at 128.40 (61.8% of 128.88 to 127.65), then 128.88 followed by 129.00 and 129.35 (61.8% of 130.42 to 127.65) to confirm a notable reversal unfolding.
Last week Mr Sakakibara (aka Mr. Yen) said he did not see the MoF intervening before 125 and that a USD/JPY rate in 120-125 range would not be problematic.