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At 10:00:00 AM US June ISM (exp 55.8, prev 55.7)US May Chicago Fed National Activity Index (exp n/f, prev -0.22) US May Construction Spending (exp 0.2%, prev 0.2%)
The dollar rose by late European trade after earlier losses carried it as low as 99.77 against the euro and 119.25 yen. Telecom woes were the main interest as breaking news that France might renationalize the heavily indebted France Telecom drove the stock higher but the euro lower. The Finance Ministry initially said that if the market mood does not improve it would consider such a move. It later retracted its earlier statement bringing confusion to the market. However, given the large stake the government holds in the national telephone monopoly the rumor was enough to wake traders up to the fact that corporate risks are not confined to the US. The other driving force behind the euro selling was just what would France do with the enormous debt load carried by the telecom giant, especially given ongoing concerns about France's commitment to reducing their debt by 2004 as planned. EUR/USD fell to a day' low of 98.96 but profit taking should ease up ahead of the US open as dealers will await US data and Wall Street to provide direction.
A holiday-shortened week will make this morning's June ISM manufacturing survey the key data release given that bond and stock trading will be closed on July 4 with many dealers taking Friday's shortened day off as well. This could make Friday's labor report, which is expected to show the jobless rate increase to 5.9% from 5.8% with job creation around 100k in June, have little impact.
Dollar losses stopped in early London trade after EUR/USD reached a high of 99.77 and then dipped below today's opening at 99.16 and slightly below the 99 cent handle. European PMI data was also mixed, giving incentive to take profits today ahead of the 1.00 figure. German PMI rose to 50.2 in June from 49.8 while it fell in Italy to 51.1 from 51.8. E12 April retail sales also fell by 0.6% bringing the yearly rate down to 0.1% from a downwardly revised 1.9% in March.
Support is seen at 98.85, the 62% retracement of the 98.33 to 99.77 rebound. A move below here would open the way for a test of 98.60 and possibly Friday's low of 98.33 which also happens to mark trendline support. Selling below 98.30 could trip stop losses around 98 cents and would lead to a larger selloff targeting 97.65, the 38% retracement of the 94.07 to 99.85 rally. But any correction in EUR/USD should be contained above here for another run at parity in the near future. Moreover, much of the recent movement in EUR/USD has been characterized by bargain hunting on the dips. Therefore, given that Friday's data showed net long EUR/USD positions fell to the lowest level in 11 weeks, it could open the way for new longs targeting parity.
Meanwhile, today's June PMI data could have a limited effect on the dollar as much of the market continues to be driven by the crisis of confidence on Wall Street. Furthermore, quarterly US earnings season is coming up and markets are braced for more bad news, which could further weaken already poor confidence. Wall Street ended unchanged on Friday ahead of the closing of the books before the quarter, but there are fears on the Street that after Anderson accounting errors led to both WorldCom and Enron debacles, there might be more companies out there to disclose fraud very soon. That will keep downward pressure on the jittery markets as investors steer clear of uncertainty.
In Japan, the Tankan survey of business sentiment showed the largest jump on record over the last three months, according to the Bank of Japan survey of large businesses. However, the markets were unimpressed as traders wondered how much of it came from exporter strength and whether the Tankan accurately reflected what a rising yen would do to these earnings. The yen initially rose but USD/JPY regained itself as traders began to fear intervention following Friday's joint effort by the ECB and BoJ.
USD/JPY maintained above support at 119.20 after initially failing at the 120 yen level in Asian trade. Intervention fears lingered in the market after Friday's well-timed joint effort by the Bank of Japan and ECB pushed the pair up from Friday's 9-month low of 118.35. Resistance is seen at 120.00 followed by 120.20 and Friday's intervention high of 120.35. Any lasting gains will be determined by whether Friday's move can be interpreted as a tacit agreement amongst all G8 members that support for the dollar is needed. If not, further USD/JPY losses could ensue.
GBP/USD fell to a day's low of 1.5290 as it struggled to keep above the 1.53 mark in the wake of weak UK PMI figures and a falling EUR/USD. UK June CIPS PMI fell to 50.5 from 52.9 defying expectations of a rise in June. Support is seen at 1.5260/50 and 1.5220. Trendline support is seen at 1.51 which should contain any further weakness before another run higher. Resistance is seen at 1.5345 and Friday's high of 1.5375.
The Swiss franc mimicked the movement in EUR/USD, initially rising to a day's high of 1.4754 before hitting a session low of 1.4860. USD/CHF upside seen contained around 1.4900/20.