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A recovery on Wall Street helped the dollar regain its footing on Monday and the greenback is now trading around Friday's New York closing levels of 94.40 against the euro and 124.35 against the yen. Overnight news that the US had foiled a possible terror attack only added anxiety to an already stressed US market and with the exception of retail sales, industrial production and consumer confidence data later in the week, the lack of key economic data will mean dealers remain focused on US equities for direction in the dollar.
Fortunately for the dollar, the Dow gave a last minute rally and remains above the 9,500 mark. This is psychologically important for the dollar because the last time the Dow broke below 9,500 was the week of September 11. Therefore, dealers will be alert to a further decline on Wall Street this week which would add to investors' fears and the dollar's downward momentum after a brutal show last week that sent it to 17-month lows against the euro.
EUR/USD is hovering around the 95.50/60 barrier as dealer lack conviction to attempt a break of last week's 17-month high of 94.87. On Monday EUR/USD touched 93.93, the 62% retracement of last week's 93.35 to 94.87 rally, but found good bargain hunting from dealers keen to buy on the dips. The single currency has since regained its footing back above 94 cents which happens to mark current trendline support. Resistance is seen at the 17-month high of 94.87 followed by 95.00, 95.50 and the January 2001 high of 95.95. After that the next target would be parity with the dollar.
Today's data from the Eurozone is expected to show a marked improvement in German industrial production for April and a continued trade surplus for both Germany and the Eurozone as a whole. Germany's ZEW business survey is also forecasted to rise a full point to 67.3 in June after back-to-back declines in the previous months. The ZEW is seen as a leading indicator to the highly anticipated Ifo survey released two weeks later. On the other side of the channel, UK trade data is expected to show a continued deficit while industrial production remains positive.
USD/JPY remains well supported above 124.50 but continues to trade in a tight range just below 125 as exporter offers keep a lid on the pair. Dealers are also weary of Japan's repeated interventions which have put a rising floor under the dollar since their first intervention 10 days ago. The MoF's Mizoguchi reiterated today that he will continue to watch the Forex market closely, saying that there was no change in their position that Japan will act if necessary.
Monetary officials remain concerned about a rising yen hurting the export led recovery. But if the dollar continues to trend lower across the board, the MoF will have to accept a lower USD/JPY level. USD/JPY support is seen at 124.35 and 124.00. Resistance is seen at 125.00.
The BoJ's Policy Board began its two-day meeting today and 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. Dealers are also on alert for another intervention from the Bank of Japan this week if the yen begins rising again.
GBP/USD remained above the 1.46 figure after testing that level for most of the US session overnight. If sterling can maintain a base above 1.46 it could target resistance at 1.4635-40, followed by 1.4680. But despite the gains, cable continues to trade in the middle of its 3-week range $1.45-1.48 range with. Support stands at 1.4575-80, 1.4535-40 and by 1.45.