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At 3:00:00 AM E-12 Italian April Non-EU Trade Balance (exp n/f, prev 0.039 Bln) E-12 Italian April EU Trade Balance (exp n/f, prev -0.16 Bln) E-12 Italian April Global Trade Balance (exp n/f, prev 1.343 Bln) At 4:30:00 AM UK May PSNCR (exp n/f, prev -2.92 Bln) UK May M4 Y/Y (exp n/f, prev 5.7%) UK May M4 M/M (exp n/f, prev 0.5%)
The Japanese monetary authorities intervened in late Asian trade to prop up the falling dollar/yen rate, but profit taking and widespread dollar weakness kept the pair under pressure. The Bank of Japan intervened around the 121-level after a renewed selloff this morning pushed the dollar back towards Friday's 8-month low of 120.83 from its short-lived session high 121.70. Intervention shot the pair to a high of 122.75 before falling back below 122.00 soon thereafter. EUR/JPY also shot above the 119 mark but Friday's steep selloff from 2-year highs around 119.50 continued to pressure the cross. Meanwhile, the European majors were little changed from Monday's opening levels after a strong gains against the dollar last week.
Another round of intervention by the Japanese today could be expected if USD/JPY falls below the 121 level again. But conspicuously missing from today's intervention effort was any mention by Japanese monetary authorities of fundamentals being out of line with a rise in the yen against the dollar. As recently as the June 4 intervention, both rapid moves in the yen and unrealistic fundamentals were used as pretexts. However, this time around officials only mentioned rapid moves, which means the Japanese may understand they will have to accept a lower dollar/yen rate than wanted.
The yen appreciated by nearly 2% against both the dollar and euro on Friday morning following the Bank of Japan's Hayami who said the recent fall in USD/JPY reflected the dollar's broad decline. This was the first sign of a departure from the fundamentals argument and emboldened traders who had heretofore been weary of pushing the pair below 123.00. A host of Japanese officials later attempted to stabilize the rapidly appreciating yen, by pointing out the fundamentals, but the damage was already done. Traders are more inclined to believe the yen's recent appreciation is a function of dollar weakness and a lower USD/JPY rate may have to be tolerated, especially ahead of the G8 meeting on Wednesday.
USD/JPY support is seen at 121.70 (previous resistance) backed by 121.00 (intervention level) and 120.80 (Friday's low). Follow-up support stands at 120.45-50 backed by important psychological and technical support at 120.00.
Last week's sharp decline in the dollar came on the back of renewed US equity losses. Technically, the key factor was the Dow and Nasdaq both failing to rally from critical support around 9500 and 1500 respectively and closed at 9,253 and 1440. More losses this week would only add to pessimism over US risks and weigh further on the dollar. This could very well prove to be the case as weak US data could rock the markets again this week. Potentially instigators are Tuesday's US consumer confidence figures, Thursday's gross domestic product and jobless claims numbers, and Friday's data on personal income and spending. The key variable will be whether US GDP figures for the first quarter show a downward revision, as expected.
EUR/USD rose to a new 27-month high of 97.30 but was unable to break this mark. EUR/USD support is seen at 96.65, followed by 96.30, then by 96.05, then 95.70 and 95.30, the Fibonacci supports of the 94.07 to 97.30 rally. Failure to break through key resistance seen at 97.25/30 would likely call for a larger correction, but the 62% retracement at 95.30 should contain for the next run at key resistance seen at 97.25/30. A break above here would target 97.50 and 97.85 (previous high).
Sterling held above session lows around 1.4950 and is looking to break back above the psychological 1.50 mark. Next resistance seen at 1.5020 followed by 1.5080-38.2% retracement of the rise from the 1.3680 low (June 2001) to the 1.7357 high (Oct 1998). Downside limited at 1.4950 backed by 1.4890. Support seen at 1.4950, 1.49 and 1.4870.
The Swiss franc also extended its rally to fresh 31-month highs to 1.5086, mimicking the movements in EUR/USD. Resistance is seen at 1.5160 followed by 1.5200. Support is seen at 1.5085 and 1.50.