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The dollar faced another volatile day as a prisoner to Wall Street sentiments. The currency incurred heavy losses before the opening of U.S. markets, but a rally following Fed Chairman Alan Greenspan's speech pushed up stock indices and the dollar across the board. But the inevitable turn of direction worked against stocks, particularly the Dow, sending the index to triple digit losses, weighing on the dollar.
Optimistic data came from the U.S. today with June Industrial Production up 0.8% ahead of the 0.4% prediction. The markets did not show much reaction to this piece of news, and attention soon turned to Greenspan's semi-annual testimony on monetary policy before the Senate. He gave a positive assessment for the U.S. economy, saying sustainable growth is underway as long as further shocks do not occur. U.S. equities cut losses during Greenspan's testimony and Q&A session, soothed by his support of the Senate corporate governance bill and reassurance that the problems are not of a structural nature. In response to questions regarding the burgeoning current account deficit, Greenspan pointed out that in interpreting the deficit figure, one has to take the exchange rate and the change in foreign investment flows into account in assessing the situation.
After a steep decline from 116.50 to a fresh 17-month low of 115.44 before the open of U.S. markets, USDJPY rebounded near 116 after Greenspan's testimony. Mizoguchi's statements hinting at a possible BoJ intervention had fallen on deaf ears after yen hit its day's low, and only after the Fed Chairman's Senate session did the dollar gain ground vs the yen. A Fibonacci retracement of yesterday's high of 116.93 to today's low of 115.44 place resistance at the 62% retracement level of 116.40. Further gains in the dollar will face pressure at 117.10-20. Immediate support starts at 115.50, then followed by the 115 handle, deemed by Japanese exporters as the break even point. A fall below this level will invite more intervention rhetoric and open the way for a decline to 114.34, the February 2001 low.
Euro is retracing a little above a third of the gains it posted against the dollar and the yen sustained since Monday's Asian session. But the retracement in EURGBP has extended to about 50% from since the Monday lows. EURUSD faces interim resistance at 1.0100 followed by 1.0150, which is the core point of the weekly consolidation during December 1999. 1.0165-70 seen acting as the subsequent resistance before more downside pressure starts to form at 1.02, which is the likely level at which the pair is expected to starts consolidating. Interim support now seen at 1.0025-30 with subsequent selling expected to be limited at 0.990.
GBPUSD hit yet another 26-month record high at 1.5787 today before subsiding near 1.5736. Immediate resistance begins at 1.58, followed by 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.
The record breaking downward trend also continued for the USDCHF as it hit 1.4454, matching the October 1999 lows. 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 faces selling pressure at 1.47, 1.4750.
Much of the volatility in U.S. stocks took place in the Dow, which extended losses to over 200 pts immediately after the beginning of Greenspan's testimony, before carrying its declines to a mere 46-pt loss. But late session selling sent the index back down 166 pts to 8473. NASDAQ closed down 7 pts to 1375.
Markets will be watching some major data release from the Eurozone tomorrow. May E-12 Industrial Production expected to have fallen by 1.5% while June HICP, the inflation index, is predicted to have increased by 2.5%. In light of the recent appreciation of the euro, inflation figures for upcoming months may turn out slightly lower. For the U.K., employment statistics and the MPC Minutes of the BoE July Meeting will be released. The BoJ will also issue its monthly report for July.