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At 4:00 AM E-12 Italian June Consumer Confidence (exp n/f, prev 119.5) At 6:00:00 AM E-12 April Industrial Production Y/Y (exp n/f, prev -2.9%) E-12 April Industrial Production M/M (exp n/f, prev 0.5%)
The dollar is resting on shaky ground this morning as traders continue to shun the greenback and ignore the improving US data. With earnings season ready to start and key trade deficit data on Thursday the outlook may continue to worsen. Moreover, the European majors have regained momentum and posted new highs, putting the burden on the US to reassert its strength. But this may prove difficult given the uncertain corporate earnings outlook and heightened tensions in the Middle East after news of another Palestinian suicide bomber incited the Israelis to re-enter the West Bank overnight to seek retribution.
The dollar added to its large losses on Wednesday as Asian traders continued to shun the greenback on fears that Monday's stock market rally was not sustainable. The fact that the dollar showed little upside from Wall Street's rally also took a toll on dollar bulls who had begun to warm to the idea of a correction in EUR/USD. But the euro did not back down and instead rose to a new 17-month high of 95.41, taking out its previous high of 95.20 in US trade. Sterling also soared to a 17-month high of 1.4930 as it played catch up with the rest of the European majors against the dollar. Meanwhile USD/JPY remained rangebound despite the near 2-yen rise in the EUR/JPY cross on the back of triple digit declines in the Nikkei this week. Fears of intervention if USD/JPY falls below 124 is also seen supporting the pair.
EUR/USD defied signs of topping after its spike to 95.20 was followed by a selloff to Monday's low of 94.10. The single currency roared back with a vengeance, taking out 95.20 and establishing a new 17-month high of 95.41. The implications of this are important because renewed momentum has been established and this could encourage new longs. Resistance is seen at 95.40, 95.60 and a previous peak of 95.95. Support is seen at 95.20 followed by 94.85 and 94.50, the 38% and 92% retracements of the 94.10 to 95.40 rally. Only a break below 95.40 would initiate a move towards key support at 93.90, a break of which would be bearish for the euro.
Sterling also edged higher in Tokyo trade reaching a new 17-month high of 1.4933 as it also gained against the euro to a session high of 63.83 pence. Cable has also reasserted its momentum and support at 1.4880 ahead of 1.4860 and 1.4820 are seen containing the downside for a renewed rise above current resistance at 1.4930.
Sterling data this week includes the minutes of the last Bank of England MPC meeting today and retail sales data on Thursday. On Tuesday, 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.
USD/CHF made a 1.5 centime tumble to hit a 2 year low at 1.5496 as the Swiss currency was aided by the SNB's decision to raise its repo rate by 1 bp to 1.0% after maintaining the rate for 2 weeks. The hike in market rates overshadowed the Bank's reassertion of the disadvantages of a strong franc on the domestic economy. USD/CHF faces support at 1.5420 backed by 1.5350. Long term foundation is found atop the 1.5350 mark, which is the trend line support (weekly chart) extending from the 1.6108 (June 2000) thru the 1.5895 low (Jan 2001) and 1.5590 low (Sep 2001).
Meanwhile, wariness over Japanese intervention below 124 dampened and a precipitous fall in the Nikkei kept the yen under pressure. Japanese ministers say they continue to watch FX moves closely and the market is well aware of the governments opinion that it is inappropriate for the yen to appreciate. Weighing on the market was another anti-deflation package that failed to impress the market as renewed fears about stagnant domestic consumption, no upturn in capital spending and skepticism over the bad loan problem should dampened demand. USD/JPY twice touched a low of 124.10 after falling from an overnight high of 124.84. Support below 124 should hold up the dollar as most traders anticipate the Japanese monetary authorities to intervene in the 123-124 range. But given that this is a story of dollar weakness and not yen strength, the market may push USD/JPY below 123.00.