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At 2:00:00 AM Germany April Retail Sales M/M (exp -0.6%, 1.2%) Germany April Retail Sales Y/Y (exp 1.7%, prev -4.5%) At 3:00:00 AM E-12 Italian Final Q1 GDP Q/Q (exp 0.2%, prev 0.2%) E-12 Italian Final Q1 GDP Y/Y (exp 0.1%, prev 0.1%) At 4:30:00 AM UK May PPI Output M/M (exp 0.2%, prev 0.5%) UK May PPI Output Y/Y (exp 0.0%, prev 0.2%) UK May PPI Input M/M (exp -0.3%, prev 0.9%) UK May PPI Input Y/Y (exp -5.1%, prev -3.7%)
The dollar rose on profit taking in Tokyo session as dealers cut back on some of their long euro positions after Friday's rally to 16-month highs just below 95 cents. But profit taking could end quickly if concerns about US equities continue to weigh on an already destabilized market, which could propel the euro higher against the dollar again once the correction is over.
EUR/USD support is seen at today's low of 93.93, which is the 62% retracement of last week's 93.35 to 94.87 rally. A break below here would seek out 93.60 followed by 93.35. Resistance is seen at 94.30, 94.50 and the 16-month high of 94.87.
France's first round of parliamentary elections put the center-right in the lead which could give way to a landslide victory in the second round of voting in June 16 where the right could take around 380 out of 577 seats in France's National Assembly. The possibility of a center-right government in France is a large plus for the euro.
But France's medium term risk remains given that its April budget deficit numbers showed a rise in the imbalance to 32.25 bln euros from 26.09 bln a year ago and French Fin Min Mer caused some controversy after saying the budget deficit would be higher than that estimated by the previous government. France has been amid four Eurozone nations criticized for its fiscal laxity, which is causing no reduction in its deficit/GDP ratio as required under the Eurozone stability pact. The Finance Ministry later clarified Minister Mer's comments on the deficit, asserting that France respected the EU stability pact's 3% deficit/GDP limit.
Today's economic highlights from Europe include a possible fall in German April retail sales and subdued producer price data from the UK.
Cable fell back through the $1.46 figure after rising on Friday from a rosy UK PMI Services Survey to 56.7 in May from April's 54.5. But cable continues to trade in the middle of its 3-week range $1.45-1.48 range with resistance at 1.4635-40, followed by 1.4680. Support stands at 1.4575-80, 1.4535-40 and by 1.45.
USD/JPY continues to edge higher since Japan's repeated interventions have put a rising floor under the dollar. Monetary officials remain concerned about a rising yen hurting the export led recovery. But selling interest remains strong ahead of 125 level keeping the dollar's high limited to 124.91. Moreover, if the dollar continues to trend lower across the board, the MoF will have to accept a lower USD/JPY level, thereby pushing that floor back down. USD/JPY support is seen at 124.60/65 followed by 124.35. Resistance is seen at 125.00.
The market showed no reaction to news that Japan's core machinery orders for April rose 8.4% from down 6.2%, and well above expectations. The annual rate still showed a decline of 17.9% from -22.0% in March, indicating a bottoming out in the economy but not showing any signs of lasting improvement which would lead to a recovery. Moreover, capital spending is not likely to pick up until the US recovery becomes undisputed, meaning real growth wont be seen until much later this year. BoJ officials remain concerned about capital spending as well and said household spending data and the cyclical recovery in exports distorted the impressive 5.7% rise in Jan/March GDP.
The BoJ's Policy Board is expected to keep monetary policy unchanged on Wednesday with the current account target around 10-15 trillion yen. But the yen's 7% rise against the dollar since April is keeping downward pressure on inflation and could put the central bank under more pressure to boost liquidity further.