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Euro continued its relentless run, hitting 14-month highs against the dollar and the pound at 93.73 cents and 64.04 pence respectively, spurred by positive balance of payments data from the Eurozone and renewed concerns with US accounting practices. The rally in euro crosses limited the dollar's fall against the Japanese and British currencies through the cross rate effect, but did not prevent the dollar trade weighted index from tumbling to 111.61, its lowest intraday low since the 111.31 low on that fateful September 17th-- when US stocks resumed trading with a plunge following the Sep 11 attacks.
The balance of payments data from the Eurozone showed that direct investment (purchases of at least 10% stakes in companies) combined with portfolio investment in the Eurozone produced the first net positive figure in March (2.2 billion euros) in 5 months. The trade data was also helpful to the euro, showing a current account surplus of 3.7 billion euros in March from 2.10 billion euros in February and a 1.5 billion euro deficit in January.
On the US front, news that the SEC was investigating the accounting practices of oil services company Haliburton highlighted the increased motives for global investors' disinterest in US assets. Emerging investigations with US investment banks' practices in as well as the accounting practices of valuation treatment underlines the fact that US stocks are overvalued which adds more reason to selling US equities.
EUR/USD's 12% run since February makes this the highest winning streak since last summer's 14% rise. Resistance starts at today's 93.74 high, which is the region at which the pair failed in the first 2 weeks of March 2001.A break above 93.80 raises the possibility of 94.20 and 94.45-50 cents. A pull back in the pair is seen limited to 93.cents and 92.70s.
Overnight, Japan's Industrial production showed a preliminary increase of 0.2% in the month ending in April, lower than the expected 0.8%, but was still the 3rd consecutive monthly increase. The METI said it expected manufacturers' output to rise 5.1% m/m in May followed by a 0.4% decline in June.
USD/JPY continued to face tight trading ranges, but could call up support at 124 followed by 125.80-85. Should no intervention or a threat of it does not materialize in the Japanese session, losses could accumulate to 123.50. An initial rebound past 124.65-70 is required to stem the current bearishness in the pair.
USD/CHF breached below the key 1.57 support despite today's decision by the SNB to cut the repo rate to 1.0% in order to stop the franc from further appreciation. The next fundamental support comes up at 1.56 followed by 1.5530. Medium term support seen at around 1.5350, which is the trend line support extending from the June 23 low thru Jan 5 2001 low thru the Sep 21 low.
Cable continues to trade within the 1.4520-1.4620 range for the 10th consecutive session, currently standing near $1.46. On one hand, the pair is being helped by riding the back of the rallying euro, while on the other hand, it is being weighed on by the Bank of England's concerns of an undesirable appreciation in its currency and by the emerging growth concerns coupled with inflationary pressures as spelled by the Bank's inflation report last week. The pair faces preliminary support at 1.4580-85 backed by 1.4545-50. Subsequent support seen at 1.4510, a break of which would pave the way for more rapid declines towards the May 14 low of 1.4470. Resistance seen starting at 1.4625-30 followed by increased downward pressure at 1.4655-60.
While gold prices are soaring to fresh 2 and half year highs, moving inversely to the dollar, oil prices continue on the retreat, with US crude trading at $25 per barrel. Although the Palestinian-Israeli is by no means over, chances of politically triggered supply disruptions in the Middle East are diminishing. Last week's report from the American Petroleum Institute showing lower refinery utilization and talk that the US military is trying to persuade President Bush that any attack on Iraq would require considerable time are also contributing to the fall in the war premium in oil to about $1 from as much as $3.
US stocks fell across the board on concerns with news of a preliminary SEC investigation in the accounting practices of Halliburton Company, the oil company whose chief executive was current US Vice President Dick Cheney. The news weighed on other energy trading companies such as Williams Cos and El Paso. Dow fell 58 pts to 9923, approaching the 200 day moving average of 9900 after falling below the 200 day moving average (10100) yesterday . NASDAQ closed down 27 pts or -1.7% at 1624 while S&P500 fell 6.9 pts to 1067. Both NASDAQ and S&P500 dropped below their 20-day MA yesterday. The last time both indexes were above their 200day MA was in early April.
Q1 GDP data from the Eurozone is due at 6 AM EST tomorrow expected to show a 1.0% rise following a 0.7% decline in Q1 of last year. As in last week's reported 0.7% increase in Q1 GDP data from Germany, the bulk of the Eurozone's rise in growth is seen coming from higher net growth. The fact that Q1 growth in Eurozone is 4 times less than its US counterpart (last week released at 5.6%) will not likely weigh on the single currency, which is currently on an impressive momentum drive, and exploiting geopolitical concerns as well as worries with US stock valuations.