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At 8:30:00 AM US May Durable Goods (exp 0.1%, prev 1.5%) US May Durable Goods Ex-Transportation (exp n/f, prev 2.9%) US May Durable Goods Ex-Defense (exp n/f, prev 3.9%) At 10:00:00 AM US May New Home Sales (exp 917.0K, prev 915K) At 2:15:00 PM US FOMC Meeting Decision (exp n/f, prev 1.75%)
The dollar is poised to reach parity with the euro today after an overnight announcement by WorldCom that it had uncovered improper accounting of more than $4 billion rocked the financial markets from Tokyo to London this morning. Traders treated the dollar with equal distain, forcing Japan back into another FX foray but with little effect. Multiple interventions failed to hold the dollar above 120 yen as it slid to new multi-month lows at 99.41 against the euro and 1.5270 to the pound. European traders expect blood to spill on Wall Street this morning with the FTSE already down 3% and the DAX off an incredible 5%. Dealers also have little reason to take profits from the dollar's meteoric fall, given overnight comments from US Treasury Sec O'Neill that the market was rendering its "own judgment" on the value of the US dollar, basically condoning the decline.
The US Federal Open Market Committee (FOMC) ends its 2-day meeting today but no change in rates is expected until this fall at the earliest. Instead, traders will eagerly await any comments concerning the newfound weakness in both stocks and the dollar since the last meeting on May 7, when the dollar index was at 115 and the Dow above 10,000.
Markets will also likely be more concerned with today's release of the May durable goods report which is expected to have risen by 0.1% to 0.5% from 0.8%, while durable goods excluding transportation items is seen up 1.0% from 3.5%. The drop in core orders that exclude aircrafts and defense is expected to be the main reason to the easing in orders. Some private forecasts see the May headline figure declining as much as 1.0%. If we do see a decline, than that would convey the message that companies remain hesitant in their capex plans, which could subject the dollar and the markets to renewed damage.
EUR/USD resistance is seen at today's 28-month high of 99.41 before the dollar reaches parity with the euro. But any correction has met with eager bargain hunters buying EUR/USD on the dips as evidenced by today's fall to 98.80, the 38% retracement of the 98.50 to 99.40 rally. The last dip contained at 96.60, the 38% retracement of the 94.07 to 98.16 rally before surging higher. Therefore, parity may just be a pit stop onto greater EUR/USD levels in the very near future.
Japanese officials gave way to a renewed decline in the dollar after repeated attempts to stabilize the dollar above 120 yen proved futile. USD/JPY then lurched to a 8-month low of 119.36, below 119.67 lows. Support is now seen at 119.00 then 118.35. Japanese will continue to intervene but failure to keep it above 120 is seen as a sign that dollar weakness will prevail.
An overnight comment from Treasury Sec O'Neill that the market was rendering its "own judgment" on the value of the US dollar echoed last Friday's remark from BoJ Governor Hayami that the decline in USD/JPY was the result of a broad based decline in the dollar. Furthermore, Japanese officials at the Ministry of Finance have avoided making any reference to fundamental values and have instead spoken out against rapid moves, thereby making more falls in the pair inevitable since they are not protecting a certain level, only a level of decline over time.
Comments from European officials were all the more bearish for the dollar. The EU's Solbes said today that EUR/USD parity could be reached as early as this weekend while Germany's Eichel said the FX market now believes that Europe has brighter prospects than the US and that a strong euro helps keep import prices low. The Swiss Nation Bank's Blattner also pointed out that the central bank's main concern was the euro's rate against the franc rather than the dollar, highlighting a growing consensus amongst G-8 leaders that a fall in the dollar is OK.
USD/CHF fell to a 32-month low of 1.4769. Sterling rose to a new 17-month high of 1.5275. Support is seen at 1.5250 and 1.5230, followed by 1.52.
In an interview with the FT, UK Treasury Chancellor Brown said he would not be pushed into joining the euro by the pound's weakness, sending GBP higher against the euro. Brown also signaled that the BoE would raise interest rates soon, thereby increasing the rate differential which also helped the pound today.