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At 8:30:00 AM US May CPI M/M (exp 0.2%, prev 0.5%) US May CPI Ex-Food/Energy M/M (exp 0.2%, prev 0.3%) US May CPI Y/Y (exp n/f, prev 1.6%) US May CPI Ex-Food/Energy Y/Y (exp n/f, prev 2.5%) US May Housing Starts (exp 1.6 Mln, prev 1.555 Mln) US May Real Earnings (exp n/f, prev -0.7%) US May Building Permits (exp n/f, prev 1.631 Mln) At 8:55:00 AM US Weekly Redbook Sales (exp n/f, prev 2.3%) At 9:00:00 AM US BTM/UBSW Weekly Chain Store Sales (exp n/f, prev 1.6%) At 11:00:00 AM US Weekly ISI Company Index (exp n/f, prev 44.9)
The dollar gave back more of its overnight gains against the European majors, falling to day lows of 94.85 cents against the euro and to a new 8-month low of $1.4828 against sterling. But the dollar did rise against to a high of 124.84 yen on the back of a strong one yen rise in the euro/yen cross to a high of 118.27 today. Dealers said Japanese trust banks and pension funds had been big sellers of yen for euros, which lifted the euro across the board after showing signs of topping around 95 cents last week.
Overnight gains on Wall Street failed to inspire the greenback as a majority of dealers wait to see better evidence of a recovery in US stocks. With little economic data before Thursday's jobless claims, current account data and leading indicators, traders will continue to monitor the mood on Wall Street. One key event today will be the Oracle earnings report after the close of trading. With the Nasdaq looking oversold and most of larger stocks gaining strength in the last couple of trading sessions, a positive outlook from Oracle has the ability to rally the tech sector.
Other earnings to be announced today include Best Buy, Circuit City, Jabil Circuit and Lehman Brothers. Todays data includes CPI for May and Housing Starts and Building Permit reports.
The technical outlooks for the euro continues to call for a correction, but the key variable this week will be whether the Dow and Nasdaq can rally from critical support around 9500 and 1500 respectively. We saw the start of a possible rally on Monday, but failure to do so would likely increase pessimism over US risks and weigh on the dollar. A short-term upward correction in stocks would bring relief to the Street and could easily knock out weak longs in both the euro and gold, thereby driving the dollar higher as well.
EUR/USD rose above resistance at 94.77 cents, the 62% retracement of the 95.23 to 94.10 decline, to a day's high of 94.85 which marks trendline resistance. The break above this level (94.77) could lead to a test of 95 cents ahead of Friday's 17-month peak of 95.20. Resistance is seen at 95.30, 95.50 and 95.95. But failure to breach 95 cents and a break back below 94.77/70 area could lead to a test of overnight lows around 94.10 ahead of key support at 93.90/95. A fall below this level opens the way for a bigger correction. However, as long as EUR/USD remains above 93.95 support, key resistance at 94.70/80 remains the most immediate threat and traders will look for a break back above that level to give the impetus for a test of new highs.
Sterling rose to a new 8-month high of 1.4833 in London trade as the late breakout in GBP/USD continued to catch up with the run-up in EUR/USD over the past few weeks. Strong resistance is seen at 1.4830 and 1.4875, which should contain the upside today, but trendline resistance turned to support at 1.4750/60 looks likely to hold. Sterling data this week includes inflation figures today, minutes of the last Bank of England MPC meeting on Wednesday and retail sales data on Thursday. UK inflation was lower than expected with UK RPIX falling to a mere 1.8% y/y from 2.3%, well below expectations around 2%. Since Inflation in May (measured under retail prices excluding mortgage payments) remained far below the Bank's 2.5% target, markets will scrutinize the retail sales figure. It is believed that for chances for a July rate hike to be eliminated, retail sales should come in at -0.5% or worse. UK rates are currently standing at 4%, their lowest level in 38 years, since they were cut on October. But UK rates are still higher than their Eurozone and US counterpart.
The Swiss National Bank raised its repo rate to 1% from 0.99% after repeated attempts to stem the rise of the franc against the euro appear to have satisfied the bank. Swiss National Bank Vice Chair Gehrig said the bank welcomes the euro's recent gains against the Swiss franc, adding that the dollar's fall against the euro has helped. But Gerhig warned that the francs FX rate is the main risk to the Swiss economy and that the economic recovery is not yet broadly supported. USD/CHF fell to a session low of 1.5560 but did not test its 2-1/2 year lows just below 1.55. Resistance is seen at 1.5640 and 1.5680.
Meanwhile, wariness over Japanese intervention below 124 dampened demand for the currency. Senior Japanese Fin Min Mizoguchi daid today he would continue to watch FX moves closely. This added to top fianancial diplomat Kuroda's comment on Monday that it was inappropriate for the yen to appreciate. Moreover, yesterday's announcement of an anti-deflation package failed to impress the market and renewed fears about stagnant domestic consumption, no upturn in capital spending and skepticism over the bad loan problem should keep the yen under pressure. USD/JPY rose to a session high of 124.84, but fell back below Fibonacci resistance (38% of 125.88 to 123.92 decline) at 124.65. Follow up resistance is seen at 124.80/90 and 125.20. Support below 124 should hold up the dollar as most traders anticipate the Japanese monetary authorities to intervene in the 123-124 range.