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The dollar recoiled against the major currencies in response to the US ISM non-manufacturing survey that declined slightly less-than-expected to 57.3 in March from 58.7 in the previous month, even though it marked the second straight month above the key-50 level to indicate an expansion in the sector. Although the ISM Non-manufacturing New Orders Index fell to 54.9 in March from 57.3 in February, the ISM's Kauffman remarked that the figure pointed to continued strength overall in the services sector. However, he warned against prematurely concluding that employment in the sector would increase before mid-year, despite the improvement in the ISM Non-manufacturing Employment Change Index to 45.5 in March from the previous 43.6. Finally, the ISM Prices Index climbed to 53.0 in March from 50.0 in February, foretelling of upward price pressures in the services sector. In spite of today's lackluster data, the US is still viewed as having the brightest economic outlook of all the major nations. US Treasury Undersecretary Taylor said that monetary and fiscal policy bode well for a long US expansion, in contrast with Europe, which he believes is recovering with a bit of a lag, and Japan, which Taylor concedes is exhibiting some signs of a cyclical turnaround.
USD/JPY bounced back to the 132.60s after bottoming at a 3-session low of 132.38. Defying expectations, the yen actually rose against the dollar and euro, underpinned by the 1.75% or 196-point rally in the Nikkei to 11400. Analysts explained the largest rally in the Japanese stock market in two weeks as a result of public pension funds investing domestically, and a delay in anticipated fund outflows because of the tensions in the Middle East that are prompting traders to cover their short yen positions. Nevertheless, once the jitters have been calmed, traders expect the yen to come under renewed selling pressure. Upside capped at 133.0, 133.45, 133.65 and 134.0. Support is seen at 132.0, 131.70, 131.20 and 131.0.
EUR/USD hovered virtually unchanged above the 88-cent figure as markets mulled the likely impact of the conflict in the Middle East on the currency. With investors preoccupied by the situation between Israel and Palestine, positive economic data made little impression in currency markets. Eurozone economic sentiment rose to 99.5 in March from the previous 99.2, and the business sentiment indicator improved to -11 in March from the previous -14. Meanwhile, the Eurozone unemployment rate held steady at 8.4% in February.
In the European session, Bundesbank member Klaus-Dieter Kuebacher reportedly recommended that the European Central Bank cut rates by 25-bp to encourage a Eurozone recovery, as well as to improve market sentiment toward the Euroarea. His comments emerged a day before the ECB is scheduled to announce its rate decision, although economists are not anticipating a change in rates tomorrow. In fact, many analysts project that the European Central Bank may even resort to raising interest rates later this year to counter the rise in inflation, a policy that would simultaneously hamper growth.
Once FX markets move beyond the current state of suspension, analysts believe the euro's trend is likely to be on the upside, with resistance at 88.40- the trendline resistance between the September 17 high and the January 2 high, followed by the 200-day moving average at 88.70, which coincides with the 61.8% Fibonacci retracement of the move between the 90.63 high to the 85.63 low. Support is viewed at 87.55, 87.0 and 86.80.
GBP/USD lost one-half cent to a 2-session low of 1.4335, slipping also against the euro ahead of tomorrow's Bank of England monetary policy meeting. Analysts expect the BoE will leave interest rates unchanged at 4.0% for the fifth month running on Thursday, although many market pundits are anticipating a rate hike perhaps as early as next month to dampen economic activity. The latest housing prices and consumer credit data highlighted the strength in spending that has helped the UK achieve the best performance relative to other nations in this global economic downturn. Support stands at 1.430, 1.4250, 1.4220 and 1.420. Resistance is eyed at 1.4420, 1.4465 and 1.450.
USD/CHF fell half-a-centime to a 1-1/2 week low of 1.6572, as the Swiss franc continued to benefit from safe-haven flows in response to the escalating conflict between Israel and Palestine. Support holds at 1.6570, 1.6545 and 1.650. Upside capped at 1.670, 1.6760, 1.6805 and 1.6860.
Chicago Fed President Moskow declared today that a US economic recovery is under way, noting that he expects moderate gains in consumer spending. Moskow said that businesses are now rebuilding inventories, although firms are still "somewhat cautious" on business investment. Thus he repeated that the timing and the size of a pickup in business investment are "quite uncertain". On an upbeat note, he pointed to the anecdotal data on manufacturing being much more positive than a few months ago.
In addition, the Fed's Moskow stated that he does not see inflation accelerating outside energy in the foreseeable future, while attributing the recent rise in oil prices to the events in the Middle East, a strong economy and other seasonal factors. Therefore, he stressed that there are still risks to US final demand, with potential areas at risk being business and consumer spending. Moskow expressed his concern that the rising jobless rate could have a significant adverse effect on consumers.
US equities retreated on gloomy corporate news and fears about a war between Palestine and Israel that could disrupt oil supplies. The Dow plunged 115 points to 10198 and NASDAQ shed 20 points to 1784. This week's remaining US indicators include jobless claims, labor market report and consumer credit. Traders are anxious ahead of Friday's key labor market report. The estimate is for payrolls to increase by 25,000 to as much as 41,000 workers in the week ending March 2, and the unemployment rate to edge up to 5.6% from the 5.5% seen in February. Richmond Fed President Broaddus and St. Louis Fed President Poole are scheduled to speak on Thursday, followed by Kansas City Fed President Hoenig on Friday. Eurozone economic highlights consist of the ECB rate decision and press conference, retail sales, Services PMI, industrial production, German Services PMI, French Services PMI, Italian Services PMI, German manufacturing orders, Spanish industrial production and Dutch CPI. Major data releases from the UK comprise the Bank of England monetary policy decision, and the NTC/REC report on jobs. Key Japanese indicators are the trade balance, foreign reserves and the indices of business conditions.