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At 10:00:00 AM US March ISM non-mfg (exp 57, prev 58.7)
The dollar was unchanged in London trade as investors sat on the sidelines due to currencies not trending amid an uncertain environment. EUR/USD floated between 87.70 and 88.00 and was not helped by data better than the market expected. For the most part, 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. While oil producing countries have traded higher, the majors have been generally rangebound since Monday's spike lower in the dollar.
There continue to be many good reasons to be bullish on the US and the dollar, but the market has shifted back to a risk averse mode and in this particular situation, the dollar is on the defensive because expectations of superior performance have already been built into the price. Moreover, the situation in Israel is deteriorating and has created a Mideast effect on the US markets where foreigners are reluctant to invest in the US amid the uncertain environment and rising oil prices.
Today, the yen rose to a day's high of 132.62 and 116.54 against the dollar and euro after Japanese public pension funds were seen buying domestically but not abroad, which helped the yen forego a sell off that the market was anticipating at the start of the new fiscal year on Monday. This Mideast effect, where foreigners are uneasy about putting money abroad, will weigh most on the dollar which needs $1 billion USD a day to finance its current account deficit. But this could be just a short-term setback for the dollar because there is a large amount of money sitting on the sidelines which dealers expect will eventually find its way to the US this year when the recovery is not compromised by crisis.
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 pent up demand for foreign assets traders pared yen short positions and USD/JPY fell to a day's low of 132.62. 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. 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.
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.
EUR/USD traded rangebound between support at 87.73 and resistance at 88.00. Bias still seen to the upside, but the market is stalling amid directionless trade in uncertain conditions. The euro rose to a day's high of 88.03 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.
Economic sentiment in the Eurozone improved by 0.2% in March to 99.5, in line with estimates. The industrial confidence index for the E-12 came rose to -11 while the consumer confidence index remained steady at -9. The data did little to change the euro, which continued to trade rangebound against the dollar and above key technical support at 61 pence.
Today's US March ISM non-manufacturing survey is expected to edge back to 57 after the February services index jumped 9 points and burst through the 50 mark. The data is not expected to have much of a market impact.
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. Today's price action kept cable below 1.4387 at a day's high of 1.4379. Follow up 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.