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At 2:00:00 AM E-12 May GermanTrade Balance (exp EUR 9.9 bln, prev EUR 9.3 bln) E-12 May German Current Account EUR (exp 2.2 bln, prev EUR 3.4 bln) At 4:30:00 AM UK May Manuf Production (y/y) (exp -3.0%, prev -4.4%) UK May Ind Production (y/y) (exp -3.1%, prev -4.1%) UK May Manuf Production (m/m) (exp 0.1%, prev 0.8%) UK May Ind Production (m/m) (exp 0%, prev 1.1%) At 6:00:00 AM E-12 Q1 Eurozone Labor Costs 2nd release (exp 3.7%, prev 3.7%)
The dollar was little changed against the yen at 118.00 in Asian trade and slightly higher against the European majors on mild profit taking. EUR/USD is holding above 99 cents whereas GBP/USD continues to consolidate around 1.5450. Doubts over US asset market risks persist in weighing on the currency as the Dow dropped 178 to close at close 9096, thus returning towards the key 9000 level, while the NASDAQ fell back below the 1400-level, shedding 24 points to close at 1381. Despite last Friday's rally, the rate of deceleration in US equities remains and that will keep downward pressure on the greenback. Today's key data from Europe is UK industrial production for May which is expected to rise 0.1%.
Pres Bush came to Wall St overnight to deliver a speech targeting corporate responsibility but investors found no comfort in his statements given the growing consensus that the later half of the 1990s was rife with aggressive accounting (including Pres Bush's Harkin Corp. and VP Cheney's Halibuton), much of which may have yet to surface. This is an unquantifiable risk to the market and with US investors on the sidelines due to waning confidence, foreign investors continue to stay away as well which is weighing on the capital account financing needs of the growing current account deficit and thus the dollar. This and the fact that the US remains engaged in a war on terrorism, should keep the dollar down over the medium term. In fact, investors have sold into the rallies in both the dollar and US equities since April, keeping the downtrend intact.
EUR/USD gains were capped at 99.50 overnight and failure here led to mild profit taking sending the pair to a session low of 98.90. Heavy option-related selling around 99.50 cents in late U.S. trade prevented EURUSD from reaching parity. Given the lack of key data from the Eurozone and the US today the pair could retest support at 98.80/90. A break below this level would target 98.60, the 38% retracement of the 97.15 to 99.50 rally. Follow up support is seen at 98.30/20 and 98.00 which should contain any correction lower before another attempt at 99.90 highs and parity.
USD/JPY looked to break back below 118 after hitting an overnight 9-month low of 117.75. But support is seen around 117.55-60, followed by key support at 116.90, where the 200-week moving average lies. Moreover, traders are reluctant to sell dollars below this area following Mizoguchi's comments that it is unfavorable for dollar to fall to the 117 level and appropriate measures in the Forex market will be taken if needed. Intervention fears should slow the dollar's decent against the broadly stronger yen and could engender profit taking which would send the pair higher. Resistance starts at the previous intervention level of 118.35, then subsequently at 118.80-85 and 119.00.
Cable is looking to break its overnight 26-month high of 1.5491, which is just above the July 1999 low of 1.5485. A clear breach above it will face the next target at 1.5517--the 50% retracement of the decline from the 1.7354 high (Oct. 98) to 1.3680 low (June 01). 1.5616 stands as the next key resistance, the Mar. 24, 2000 low. Support seen at 1.5430, 1.5390-00.