www.forexnews.com
At 8:55:00 AM US Redbook (exp n/f, prev -0.3%)
The euro rose across the board today, breaking above 93 cents today, the first time in over 8 months, as well as rising to a 14-month high of 63.47 pence and well above the 1.46 Swiss franc mark. French business confidence numbers helped the euro maintain establish itself early on in London as the indicator for May rose to 101, above expectations of a rise to 98. Moreover, Eurozone trade figures showed a rise in the E12 surplus to 3.7 bln euros in March from 2.1 bln. The combined direct and portfolio investments showed an inflow for the first time since November 2001. This corroborates what many had suspected since April when the Japanese first held off from investing their repatriated assets back abroad, and in the US.
Supporting the case for more gains in EUR/USD was a further uptick in gold prices in the London fix to $325 from $320 on Tuesday. Gold has gained around 15% this year, hitting a new 2-1/2 year high of $324.60 an ounce on Tuesday in the spot market mainly due to its safe haven status. Investors still appear unnerved by tensions between Pakistan and India, as well as outright dollar weakness.
The factors perturbing the dollar have mainly to do with overvalued asset prices and the overall geopolitical risk environment, which is driving up safe haven assets like gold and the Swiss franc, but not the dollar. The dollar needs an environment with less risk where investors could seek out US assets and thereby finance the U.S. current account deficit.
EUR/USD rose from a session low of 92.72 (which was its previous high) to a new 8-month peak of 93.18. The session was dominated by the euro's broad strength and the dollar's struggle to hold up in light of yesterday's sell off on Wall Street.
Neither a stronger than expected rise in consumer confidence nor an unforeseen increase in existing home sales in the US were sufficient in preempting further damage in the US dollar on Tuesday. US stocks suffered their second consecutive session of declines on earnings concerns from stock giants Intel and Home Depot. US equity futures are down again today.
EUR/USD resistance is now seen at 93.35. A close above 93.35 would be extremely bullish for the euro as it would indicate the euro has strengthened beyond its post 9/11 high against the dollar. It would also end speculation that the euro's rise above 91-cents was just a false breakout of its bearish triangle formation. However, failure to break out from 93.35 would likely result in a correction back towards support at 92.70 and 92.00.
CHF reversed early gains and fell against the dollar after the SNB's lowered its repo rate to 1.01% from 1.03%. However, USD/CHF is still within half a franc of its recent 28-month low of 1.5665.
The Swiss National Bank lowered its repo rate to 1.01% from 1.03%, near to the key psychological rate of 1.0%. CHF reversed early gains and fell against the dollar after the SNB's move. USD/CHF rose to a day's high of 1.5777, but slipped back towards its session low of 1.5715, dangerously close to its recent 28-month low of 1.5665. Failure to regain resistance at 1.5760 followed by 1.5800 bodes poorly for the dollar.
Sterling rose back above $1.46 in London as it was carried higher by a rising euro and Swiss franc against the dollar. Cable reached a high of 1.4623, but still appears troubled to make it back above 1.4635 resistance level or maintain above declining trendline resistance at 1.4600. The previous break of this trendline near 1.4630 resulted in a rally to this year's high of 1.47. But sterling has since come under pressure across the board as EMU fears dog the currency. The upside remains capped at 1.46(long term trendline resistance), 1.4630/35 (prev high), 1.4660 (trendline resistance from May 15) and 1.4700 (year's high). Sterling support is seen at 1.4570, the 62% retracement of the 1.4470 to 1.4630 advance.
EUR/GBP rose to a new 14-month high of 63.47.
The yen held steady around 124.40 against the dollar with little change in dealers sentiment (export selling at 125.00 and fear to push USD below 124). Japanese officials also kept up the rhetoric today, repeating for the third consecutive day its readiness to intervene when necessary
This situation of downward pressure and intervention means that the dollar could continue to trade rangebound, stuck between bids from Japanese exporters and the conviction of the MoF to keep the rising yen from damaging an export led recovery.
USD/JPY needs to break above the important 125.45/50 level to get momentum behind it. This level marks two key Fibonacci levels (50% of 115.70 to 135.15 and 38% of 128.75 to 123.45). Support is seen at 124.00 given that monetary authorities intervened twice in the 123.50/80 area. Further support is seen at 123.15 (62% 123.45 to 125.32) and trendline support around 122.90/123.00.
Data from Japan today showed industrial output rose for the third consecutive month, albeit weaker than expected. Factory production rose 0.2% m/m in April despite a surge in exports, hinting that the rest of the economy continues to scrape by. The yen was little changed by the news.