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Euro's six-month rally vs the dollar finally crossed the psychologically significant parity mark during an early morning upsurge. The yen outperformed the dollar as well, breaking a fresh 10-month low at 115.65. The + 360-pt rally in the Dow in the last hour of trading lifted the dollar off its lows, but the outlook for the dollar remains bearish as investors grow increasingly skeptical of the general impact of these late session equity rallies.
During today's rally the euro soared as high as 1.0090 from it session low of 0.9916. The last time euro stood at parity with the dollar was during February 2000. The euro has lost some of its gains but still hovers above parity near 1.0028. At its current level near 1.0029, immediate resistance starts at 1.0035, which is the 50% retracement of the decline from 1.1824 (Jan 1999) to 0.8227 (Oct 2000). Subsequent resistance found at 1.0086, the high of February 2000. In the weekly chart, accumulated pressure just above 1.010 suggests that it could serve as the next ceiling.
While the majority of sentiments flowing from the Eurozone showed relief and praise for the euro's appreciation to above parity, European Commission President Romano Prodi expressed some caution regarding the export stifling disadvantages if the euro were to strengthen excessively. Nevertheless, a strengthening of the euro will alleviate inflationary pressure in the Eurozone.
The already strengthening yen was propped by a 107% increase in May Current Account surplus, further fortifying a sector that assumes the lion's share of the nation's growth. Breaching the 115.75 Sep 21 low, USDJPY faces temporary support at 115.66, which is the open/close of the weekly candles during the Feb 02-Mar 02 period. Each of the 5 weeks showed a close or open near the 115.60-65 level, suggesting the market's awareness of the importance of this level. While 115 may represent relatively little technical significance, its psychological importance is also magnified by claims from some Japanese exporters deeming it to be their maximum point of tolerance. Next major support stands at 113.57, the 50% retracement of the move from 79.79 yen (1995 low) thru 147.62 (1998 high).
Cable once again demonstrated its ability to ride the euro's gain vs the dollar and broke a new 26-month record with a session high of 1.5759. Like-for-like Sales figure for June jumped by 4% from the previous gain of 2.7%, another indication that the U.K. is faring economically better than the continent. GBPUSD has dipped slightly to around 1.5692. The next resistance is seen at 1.58, then subsequently at 1.5835. The next major resistance is found at 1.5915, which is the 68% retracement of the decline from the Oct 1998 high (1.7354) to the June 2001 low (1.3680). Meanwhile, support starts at 1.5650/60, and a further decline will likely face pressure at 1.5580 and then 1.5480.
USDCHF hits lowest level since October 1999, breaking the 1.47 figure, which is the 50% retracement of the rise from the 1.128 low (April 1995) to the 1.8307 high (Oct 2000). Short-term support positioned at 1.4540, near the lows from October 1999. Subsequent foundation seen building at 1.44 followed by 1.4370. Long-term support stands at 1.3845-50, the 62% retracement of the aforementioned move. Any upside is seen limited at 1.47, 1.4750. Any intervention-related buying (all dollar pairs seen gaining across the board by BoJ action) could lift the pair past the 1.48 figure onto 1.4850.
Tomorrow at 10:00 AM (EDT), Fed Chairman Alan Greenspan will be delivering his semi-annual testimony on monetary policy to the Senate. Markets will be observing closely to gauge whether an interest rate hike will occur in the near future. But 45 minutes before the speech, markets will take a look at the latest date on June Industrial Production, expected to rebound 0.6% from a previous increase of 0.2%., though a worse than expected figure could prove detrimental to the dollar and the stock market. Reactions from the market are expected to be temperate in anticipation of Fed Chairman Greenspan's testimony. From the U.K., June RPI (m/m,y/y) and RPI-X (m/m,y/y) is expected to hover at the previous month's levels and will be scrutinized for signs of inflationary pressures from the retail sector. And from the Eurozone, Italy will release June HICP (y/y) and CPI (y/y), which are expected to remain around last month's rates of 2.2%.