www.forexnews.com
At 2:00:00 AM Germany Final May CPI M/M (exp 0.1%, prev 0.1%) Germany Final May CPI Y/Y (exp 1.2%, prev 1.2%) Germany Final May HICP M/M (exp 0.1%, prev 0.1%) Germany Final May HICP Y/Y (exp 1.1%, prev 1.1%) At 2:45:00 AM E-12 French April Trade Balance (exp n/f, prev 0.4 Bln) At 3:00:00 AM E-12 Italian April Industrial Production Y/Y (exp -3.0%, prev -7.6%) E-12 Italian April Industrial Production M/M (exp 0.0%, prev -0.7%) At 4:30:00 AM UK May Unemployment Rate (exp 3.2%, prev 3.2%) UK May Claimant Count (exp 0.9K, prev 5.4K) At 6:00:00 AM E-12 1st Release Q1 Balance of Payments (exp n/f, prev n/a)
The dollar suffered a setback in late Tokyo trade following the explosion of a bomb outside the American consulate in Karachi, Pakistan. Light volume likely exacerbated the fall, as most dealers were distracted ahead of the World Cup match between Japan and Tunisia. EUR/USD jumped to a high of 94.55 from 94.30 but was unable to regain an overnight high of 94.70 and promptly faded back. Meanwhile, USD/JPY was little changed after already falling over one yen from overnight highs around 125.85. The Swiss franc rose following the blast but also recovered ahead of the Swiss National Bank rate decision later this morning. While no change is expected following the surprise rate cut last month, inflation and growth forecasts as well as any comments on the value of the franc will be watched.
Across-the-board selling of USD was seen following the worse-than-expected drop in May retail sales. So the overnight drop in EUR/USD was mainly a function of heavy overnight selling in the EUR/JPY cross after momentum failed miserably following an abortive attempt to maintain above 119. The cross is currently holding in congestion around 117.50 but now targeting the 117 level which marks the 38% retracement of the 113.40 to 119.25 rally.
EUR/USD trading higher on the day but still needs to rise above resistance at 94.70. This level marks both the overnight high as well as an intersection of previous trendlines. Failure to regain 94.70 would likely lead to a retest of the overnight low at 93.95. Here lies crucial support given that the 94-cent figure is also the 62% retracement of the 93.35 to 95.05 rally. A break below this area would therefore be seen as bearish and would target 93.35 ahead of the 92.80 low. MACD, another technical indicator, is showing a sell signal and given the large amount of euro long positions in the market, a top at 95.05 could be in place. Only a break back above 94.70 would change this outlook.
European data is unlikely to span much trading today and dealers showed little appetite to open new positions ahead of the G7 meeting this weekend. Officially, the word is that FX will not be discussed and that markets should determine exchange rates, but a rapid drop in the dollar would be bad for both the US and the nascent recoveries underway in Europe and Japan meaning there little chance US Treasury Secretary O'Neill would ask Japan to stop intervening in support of the dollar against the yen.
Therefore the dollar is again likely to take its direction from today's data and the effect it has on Wall Street. May industrial production is expected to show a 0.4% rise, similar to the April figure, but some economists are expecting a slower figure of 0.1-0.2%. The already jittery stock market could take a turn the worse if the figure comes in less than 0.2%. Also of interest is the Preliminary June figure for the Univ of Michigan Sentiment Survey which is seen down at 96 from 96.9 primarily as a result of the stock market declines in the first 10 days of the month.
USD/JPY fell to a session low of 124.60 despite another drop in the Nikkei to below 11,000 as optimism on the economy wanes. But USD/JPY fizzled out at 125.91 as it encountered option barriers ahead of 126. It also blew past strong support in the 125.45/50 area which marks both the 50% retracement of the 115.75-135.15 move and the 62% of 125.20 to 125.91 rally. Support at 124.60 is now holding and a warning from the MoF's Kuroda who said Japan will take bold action against an excessive rise in the yen is keeping the pair above the 124.00 level. Given the Bank of Japan's successful succession of interventions just below 124.00 the upside in USD/JPY remains favored.
Moreover, weakness on Wall Street is having knock on effects across the globe and giving little incentive to put money in equities abroad. Gold benefited from the downbeat outlook and traders will look to see how the US market holds up today. 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.
GBP/USD rose to a high of 1.4737, just off its 8-month high of 1.4755. Support is seen at 1.47 but failure to maintain above here could test support at 1.4680 followed by 1.4630 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 maintain above downtrend resistance at 1.5660 and then slipped below 1.5630. Support is seen at 1.5600 the 62% retracement of this week's rally. A break below here could 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.