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At 8:30:00 AM US April Exports (exp n/f, prev 79.19%) US April Imports (exp n/f, prev 110.8%) US Weekly Jobless Claims (exp 385k, prev 390k) US April Trade Balance (exp -32.1 Bln, prev -31.6 Bln) At 10:00:00 AM US Q1 Current Account Balance (exp 107.4 Bln, prev -98.8 Bln) US May Leading Indicators (exp 0.1%, prev -0.4%) At 12:00:00 PM US June Philadelphia Fed Survey (exp n/f, prev 9.1) At 2:00:00 PM US May Federal Budget (exp n/f, prev -27.9 Bln)
The dollar is under pressure from the West Bank to Wall Street and appears on the brink of larger losses into the summer months. A crisis of confidence has eliminated the hope of a sustainable equity rally and most traders are now looking to sell into the market instead of support it. The key variable this week will be whether the Dow and Nasdaq can maintain above critical support around 9500 and 1500 respectively. Failure to do so would likely increase pessimism over US risks and weigh on the dollar.
More terrorism scares and another down day on Wall Street set the stage for further dollar declines today given the expected rise in the April US trade deficit (due at 8:30AM) which will draw focus to the increasing difficulty for the US to finance its growing current account deficit given the weak US equity outlook. The expected rise in the Philadelphia Fed Survey on manufacturing and business to 12.4 from 9.1 may not be enough to help the dollar seeing as traders have pushed the dollar below 124 yen and near the January 2001 low of 95.95 cents to the euro.
Moreover, a short-term upward correction in US equities is no longer seen as that bullish for the dollar as evidenced by Monday's bounce which failed to attract dollar bulls and instead saw bargain hunters pick up the euro around 94 cents. That is making both the dollar and stock market look overvalued and technically negative which could mean the beginning of a sustained decline into 2003.
The implications of this are important because renewed momentum has been established in EUR/USD and traders are now poised to break through the January 2001 peak of 95.95 and target parity. While a short-term correction lower cannot be ruled out, the geopolitical concerns and jittery market is likely to make the dollar's upside limited. Only failure to overcome option related barriers at the 96-cent level would cause a correction back towards 95 cents. Immediate support is seen at 95.60 and 95.40 followed by 95.20 and 94.70/75 the 62% retracement of the 94.10 to 95.80 rally. A break below 94.70 could initiate a move towards key support at 93.90, but again, the downside is seen limited given the renewed focus on the Middle East and Wall Street.
Poor retail sales data from the UK did little to hamper sterling's rise today even though it suggested that the British consumer might be cooling off. But the fall in retail sales is seen giving the BoE leeway to not raise rates, which will help the struggling manufacturing sector out of its slump. Government bonds (Gilts) confirmed this notion by rising on the sign that rate hikes were less likely.
Sterling reached a new 14-month high of 1.4941 and is looking to target the 1.50 mark followed by 1.5080, which is the 38% retracement of the rise from the 1.3680 low (June 2001) to the 1.7357 high (Oct 1998). Downside seen limited at 1.4880 backed by 1.4835-40.
The Swiss franc edged up to a new 31-month high of 1.5317 and USD/CHF is seen targeting key support at 1.5300. Resistance is at 1.5400.
USD/JPY fell to a day's low of 123.73, just above overnight low of 123.65 as it continues to test below 124.00. Fears of Japanese intervention just below 124 yen to the dollar are widespread and keeping downside contained. But this weekend's G7 meeting showed little appreciation for the Japanese lack of reforms or the defense of a weak currency meaning the Japanese may find it more difficult to intervene than before since the previous interventions by Japanese monetary officials occurred at higher trade weighted levels in the dollar. Support is seen at 123.65, 123.20 and 122.80.
US April trade figures are expected to show the deficit widen to about $33 bln from $31.6 bln, with the a negligible rise in exports weighed by declining orders for aircrafts, while higher oil prices in April accounting for the bulk of the rise in imports. The trade report for Q2 is expected to show the deficit rising to 4.3% of GDP from 3.9% in Q1, which is likely to trigger further concerns of a swelling trade gap and highlight the US's increased difficulty to finance its trade gap as its stock markets continue to falter. Also at 8:30 AM is the initial weekly jobless claims expected to slip to 385K from 390K, remaining under the 400K level for the third consecutive week suggesting an improved trend in claims.
May US Leading Indicators Index is expected to show a rise of 0.3% after April's 0.4% decline. The rebound is largely attributed to the string of 4-week back-to-back improvement in jobless claims and pick up in money supply. Although the April release did hurt the market, it is unsure whether a rebound tomorrow will be sufficient in supporting stocks and the dollar.
The consensus estimate for the June release of the Philadelphia Fed Survey on manufacturing and business (due at noon) is expected to rise to 12.4 from 9.1 with forecasts raining from 10 to 15. If the figure hits the high end of forecast at 15 as , it would be the best number since February. But markets are expected to pay little heed to the report since it is not expected to cast a chance on the Fed's mind on interest rates.