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At 2:45:00 AM French Rev Q1 Payroll Employment Q/Q (exp 0.2%, prev 0.2%) French Rev Q1 Payroll Employment Y/Y (exp n/f, prev 1.1%) At 2:50:00 AM French April Industrial Production M/M (exp 0.3%, prev 0.5%) French April Industrial Production Y/Y (exp 0.6%, prev -0.9%) French April Manufacturing Production M/M (exp 0.5%, prev 0.2%) French April Manufacturing Production Y/Y (exp 0.1%, prev -1.9%) At 4:00 AM ECB Monthly Bulletin At 4:30 AM UK Inflation Report
The dollar kept both the euro and yen under pressure in Tokyo, pushing EUR/USD below trendline support at 94.40 and testing overnight highs of 125.85 yen. A further retreat in the Nikkei to 8-week lows has put JPY under increasing pressure and given the Bank of Japan's successful succession of interventions, the upside in USD/JPY remains favored.
Reports from both the ECB and BoE will we watched today for possible signals on inflation, interest rates and the economy. Data includes French industrial production which is seen up 0.3% in April from 0.5% the previous month, bringing production back into positive territory on an annual basis.
But the strong correlation between the dollar and US stocks will remain in focus and European dealers are likely to wait the London session out to see how May US retail sales affect the market. Technically, both the Nasdaq and Dow are testing key support at the 1500 and 9500 levels respectively. Failure to maintain above those levels could send the indexes beyond their 9/11 lows.
Other data from the US includes May PPI and initial jobless claims, but the key report will be the US retail sales report. It is expected to show the first decline since January and could take back yesterday's late session rally on Wall Street. May retail sales are expected to fall 0.5%, reversing April's strong 1.2% increase and will be mostly led by a decline in auto sales, which will counter an expected 0.3% increase in sales excluding auto sales. Despite the positive aspect in sales excluding autos, the reaction is likely to be negative and given the bearishness on the dollar, a further selloff in US assets would only increase the downward pressure.
However, European bourses are now seen at or above fair value and losses in the US are making their way over the Atlantic. On Wednesday, bourses were down about 1.5%, which prevented the European currencies from advancing. With little internal strength of its own, the euro will have difficulty extending its rally beyond the January 2001 high of 95.95 if US losses weigh on the European outlook as well. This means the euro may risk becoming overextended and due for a correction.
EUR/USD broke below trendline support at 94.30/40 in Tokyo but remains supported at 94.20, the 50% of 93.35 to 95.05 rally. Resistance is now seen at 94.40 (trendline) ahead of 94.65/75 (50% and 62% Fibonacci) and 95.05, the previous 17-month high. Failure to overcome these levels would be the first sign of an impending retreat back toward the 92-cent level, which marks the 38% retracement of the 87-95 cent rally. Support is seen at 94.20 followed by 93.90/94.00 and 93.60. A break below 93.60 would be an indication that the market is unwilling to sustain the euro's rapid pace higher and would likely target the 92-cent level.
GBP/USD regained the 1.47 level after an overnight retreat to 1.4680, but resistance at 1.4715/20 (50% of 1.4755 to 1.4680) is seen containing the upside for now. Sterling will have to break above 1.4725 (62% of same move) to put the latest 8-month high of 1.4755 back under pressure. Failure to do so could initiate a decline under support at1.4680 with subsequent foundation holding at 1.4625-30--just near the 61.8% retracement of the rise from this week's low of 1.4550 to the 1.4755 high.
USD/CHF gave back overnight gains after it failed to break above downtrend resistance at 1.5665 this morning. Current support is seen at 1.5630 backed by 1.5580/85 the 62% retracement of this week's rally. A break below here would test Wednesday's low of 1.5535 and below that would test the 2-1/2 year low of 1.5490 set last Friday. However, failure to break below the 1.55 level could lead to a recovery in USD/CHF above the 1.5660 trendline resistance mark.
The BoJ again upgraded its assessment of the economy this month, making it the fourth consecutive upward reassessment as exports continue to provide a strength to the struggling economy. The central bank also said that consumption and the job market were showing some bright signs as well but that a drop in overseas demand would weigh on the recovery. The MoF reported that Japan's unadjusted April current account surplus rose 21.7% y/y to 1.085 trillion yen, and the trade surplus gained 18.9% y/y to 1.004 trillion yen.
But USD/JPY benefited from weakness in the Nikkei again today and given the Bank of Japan's successful succession of interventions, the upside in USD/JPY remains favored The pair is now up 2% from the last intervention of June 4 and continues to hover near its 6-week highs of 125.87. A break above 126.10, will encounter selling pressure at 126.30-35 followed by 126.55-60. Support starts at 125.50--50% retracement of the 115.75-135.15 move. Subsequent target seen at 125.20 backed by 124.75-80 and 124.30, the 50% retracement of the rise from the 122.82 low to the 125.75 high.