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At 3:00:00 AM E-12 March Business Exp. ind (exp n/f, prev 69.7) At 4:30:00 AM UK March MO m/m prov (exp n/a, prev 0.3%) UK March MO y/y prov (exp n/f, prev 7.1%) At 5:00:00 AM E-12 Feb Unemployment (exp 8.5%, prev 8.4%) E-12 March Business Climate Indicator (exp -0.6, prev -0.9) E-12 March Business Sentiment (exp -11.4, prev -14) E-12 March Consumer Sentiment (exp -9.4, prev 9) E-12 March Overall Econ. Sent (exp 99.6, prev 99.2) E-12 Feb PPI m/m (exp 0.1%, prev 0.2%) E-12 Feb PPI y/y (exp -1.1%, prev -0.9%)
The dollar held steady in Asian trade, little changed from Monday's US close after a sharp setback at the start of this week's trade kept the dollar on the defensive. There continue to be many good reasons to be bullish on the US and the dollar, but traders have largely ignored the data of late and now shifted focus onto what currencies will perform well during heightened uncertainty and rising oil prices. From a fundamental perspective, the dollar's recent losses appear likely to last only in the short term. However, from a technical stance, the dollar may have further losses in store.
The absence of heavy Japanese buying of overseas assets at the start of the new business year this week disappointed traders after selling the yen to a low of 133.80 against the dollar this week. With no follow pent up demand for foreign assets traders pared yen short positions and USD/JPY fell to a day's low of 132.64. If a top was indeed formed at 133.80, then a fall back to 130.93, the 38.2% retracement of the 126.32 to 133.80 move could be a likely scenario before the yen comes under increasing pressure again.
The yen was also encouraged by a surprising late afternoon rally in the Nikkei which ended up 1.75%. Dealers suspect it was the business year's first buying spree by public pension funds. Others saw it as a technical bounce as the index approached the 11,000 mark. Whatever the cause, the current apprehensiveness surrounding the dollar amid a growing Mideast and oil crisis lends credence to the view of a retracement. Moreover, if cautious Japanese investors hold off on sending money abroad in the search for higher returns because they fear the uncertainty in the Mideast is going to affect world markets, then that provides a fundamental reason for a temporary lull in yen weakness. However, when the funds do begin to flow back abroad, dealers expect the yen to come back under pressure. Resistance is seen at 133.45 followed by 133.80, 134.50 and the key 135 level. Support is seen at 132.20 followed by 131.80 and 130.93.
The euro is trading near a day's high of 87.97 and continues to hold above 87.72, the 38.2% retracement of the latest rise from 86.96 to 88.18. If the 61.8% retracement at 87.43 holds, the next move should be higher, but the euro will have to take out the previous reaction high of 88.67 to open the way for a run at this year's high of 90.63.
The dollar is expected to perform poorly in the current environment of risk aversion because capital flows into US assets may slow. In the past, these generous flows have given the greenback so much strength. Understandably, international investors are nervous about the uncontrollable commodity spikes and are having flashbacks to the bad bear market of the 1970s when rising oil prices killed a recovery. Rising inflation will cause central banks to raise rates sooner than expected and oil has therefore been one of the major headwinds against the strong dollar. Therefore, jitters on Wall Street and about the economic recovery will continue to weigh on the dollar. But any losses by the greenback are not likely to be sustained. This is because rising oil prices will weigh on global growth and other currencies could be hurt worse the USD. And, in the long run, the US equity market is likely to outperform on a risk/reward basis.
Today's data from the Eurozone is expected to show a small setback in March after gains at the beginning of the year. Euro area unemployment is expected to rise 0.1% to 8.5%. This is likely to weigh on confidence which is seen at 9.4% from 9.0% in February. Business confidence is seen up slightly to 99.6 from 99.2, in line with the improving outlook from yesterday's PMI survey which rose to 50 in March.
GBP/USD rose from an overnight low of 1.4347 after giving back nearly all of Monday's sharp 1-2/3 cent gain to a 2-1/2 month high of 1.4429. Cable has broken above key trendline resistance at 1.4295 and closed above it on two consecutive days. Therefore, dealers warn that further gains could be in store but sterling will have to maintain above 1.4387, the 61.8% retracement of the move from 1.3678 to 1.4827 to open the door for a run at 1.45. Resistance is eyed at 1.4465, 1.450 and 1.4540. Support stands at 1.4250, 1.4220 and 1.420. UK housing prices rose 16% y/y in March, underscoring why the British consumer has spent so freely during the downturn and why the pound remains resilient. Overnight, the UK showed the second highest increase on record in consumer credit, which grew 1.85 billion pounds in February and denoted robust spending. Tomorrow both the ECB and BoE are expected to keep interest rates on hold, but raise them in the near future, possibly as early as this summer. The decision is not expected to sway either currency, but traders will be more interested in what the central banks say in regard to the current spike in oil prices and how that will affect their decision to combat inflationary pressures. Today's major economic release from the US is the ISM non-manufacturing survey that is forecasted to decline to 57.0 in March from the previous month's 58.7 since its sharp rise last time is thought to have been overstated. This week's other US indicators include jobless claims, labor market report and consumer credit. Chicago Fed President Moskow will speak on Wednesday, followed by Richmond Fed President Broaddus and St. Louis Fed President Poole on Thursday, and Kansas City Fed President Hoenig on Friday.