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Once again Wall Street stood in the way of the dollar. Broad gains in the US currency around mid morning European trading were gradually eroded after US stocks started to lose an early lead in mid morning US trading. A combination of a dismal report from the Richmond Fed's manufacturing and services surveys, a pick up in German think tank's ZEW Expectations Indicator, as well as breaking news of an explosion in Tel Aviv had all contributed to renewed sell-off in stocks, including a 190-pt turnaround in the Dow.
A 3.3-pt rise in Germany's ZEW Institute's Expectations Indicator to 69.6 in June, coupled with a 4.1-pt increase to 72.5 helped provide support for the euro before the currency's Wall St-driven followed through.
An earlier 70-pip drop in the euro to a 94.04 cent session low, was more than reversed, breaching through the 94.70 resistance to hit a fresh 17-month high at 94.95 cents. A breach of the 95-cent figure sees temporary resistance at 95.20-25 which is followed by 95.50. Support stands at 94.60, backed by 94.20 and 93.95, the 50% retracement of the rise from last week's 93.03 low to the latest 17-month high of 94.87. Subsequent support comes in at 93.60 backed by 93.35-40.
EUR/JPY hit a 4 month high of 118.86 reflecting the improved sentiment in the single currency and Japan's lower than expected Q1 GDP numbers last week coupled with the BoJ's insistent to stem excessive yen appreciation. The rise in the EUR/JPY preceded the gains in EUR/USD by about 6 hours, with Wall Street making the difference in the dollar's decline.
Wall Street's blues were also the catalyst in the 50-pip turnaround in USD/JPY from its 6-week high of 125.80. Further losses seen tapering at the preliminary support level of 125.20 followed by 124.80 and 124.30, the 50% retracement of the rise from the 122.82 low to the 125.75 high. Resistance starts at 125.45-50 with accumulated pressure at 126.
Cable saw some positive data earlier today, on both the domestic and external fronts. Industrial production rose 1.1% in April from the previous decline of 5.9% and beating expectations of a 5% drop. The annual rate improved to -4.1% from -5.9%. On the external front, the trade deficit improved to 2.43 bln sterling from 2.8 bln sterling as trade with European partners improved. While the production data still do not suggest a rate hike next month, they are in line with the rising PMI numbers for the month. Hawkish members of the Bank, however, could still argue for arte hike in case we get sturdy retail sales reports next week.
GBP/USD shattered the ceiling of the its 3-week range to hit an 8-month at $1.4727. A renewed break of the high sees resistance at 1.4750. Support lifted to 1.4660 backed by 1.4620 and the 1.4590-00-congestion followed by 1.4680.
USD/CHF fell over a centime and a half to 1.5540. Support seen at 1.5490. Chances of a rebound beyond 1.57 are limited to 1.5770.
Fed Governor Suzan Bies said today she wasn't sure whether the US unemployment rate has peaked at its 7 1/2 year high of 6.1%. Last Friday, the May unemployment rate fell unexpectedly to 5.8% from 6.1% but payrolls showed the creation of a softer than expected 41,000 jobs. While a series of economic indicators have improved in the US, the falling stock market and rising unemployment rate has only maintained economic uncertainty. It's also worth pointing out that in the past, the Federal Reserve had always begun raising rates once the unemployment rate established a clear falling trend. Weekly jobless claims, however, have shown a better performance, with the latest release showing that claims have fallen under the 400,000 level for the first time since the week of May 5.
Nokia's warning that sales could fall by as much as 6% this quarter as well as the explosion in Tel Aviv were largely behind the declines in Wall St. Dow finished 128 pts lower at 9517, NASDAQ fell 33 pts to 1,4997 reverting to last week's 8-month lows.