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At 8:30:00 AM US June Housing Starts (exp 1.7 mln units, prev 1.733 mln units) US June Building Permits (exp n/f, prev 1.676 mln units)
The dollar followed US equity futures higher today in London trade as short covering seemed to dominate action, not fresh hope that the worse is over. Tuesday marked the seventh consecutive decline in the Dow and many short sellers were quick to offset positions on the fear of a bear market bounce. EUR/USD fell to a session low of 1.0080 but held above that support as dealers await the US open for fresh direction and another heavy day of earnings that will move the Street. USD/JPY also rose to a high of 116.48 but could not overcome heavy resistance at that level.
Meanwhile, Fed Chairman Greenspan will address Congress again in part 2 of his monetary policy speech today, but he is not expected to say anything new that would affect markets. In yesterday's speech, Greenspan gave an upbeat assessment saying, the fundamentals are in place for a return to sustained healthy growth. He added, with inflation currently contained and with few signs that upward pressures are likely to develop any time soon, we have chosen to maintain rates unchanged. Greenspan also touched on the crisis of confidence, which has taken Wall Street for a bumpy ride, and helped to calm the markets. On the dollar he added there may be more forecasting of exchange rates, with less success, than almost any other economic variable, trying to offset some of the dire forecasts of dollar decline.
Greenspan's words brought a moment of calm to the markets but Wall Street still closed lower and the volatility in the market which has given late market rallies and sell offs will continue to affect the dollar. This morning US equity futures are up across the board, which has translated into dollar short covering as well. But another slew of earnings announcements could derail any notable gains as evidenced by news that Intel missed earnings estimates and said it would cut 4,000 jobs. This weighed on sentiment overnight as dealers anticipated investment spending to remain weak and pushed the Dow and S&P each down nearly 2% on the day. Reporting today are Advanced Micro Devices, Boeing, Citigroup, Coca-Cola, Ford Motor Company, Honeywell, J.P. Morgan Chase and other financial services companies.
EUR/USD looks poised to break below support at 1.0085/80 after again failing to push through tough resistance at 1.0150 today. The euro raced to a new high of 1.0162 in early London trade but then fell as US equity futures indicated a strong opening. The second failure in as many days could lead to a correction targeting support at 1.0035, the 38% retracement of the rally from 98.35 to 1.0162. This is backed by a previous low of 1.0020 and followed by the 50% retracement at the 1.00 handle. Given that today's rise in USD is mostly driven by expectations of a bounce on Wall Street and not fresh hope that the worse is over, the euro is likely to hold above the 1.0000/0030 area before resuming is uptrend.
USD/JPY also looks poised to break above 116.40 resistance and will have to maintain above this level to avoid putting renewed downward pressure on the pair which could target overnight 10-month lows around 115.45. A break below this key support is seen calling upon 114.34, the February 2001 low ahead of 114.10, the 62% retracement of the 101.25 to 135.15 rally. Key resistance is seen at 116.40, the 62% retracement the decline from 116.95 to 115.45. Above there USD/JPY seen targeting 116.90/117.00 followed by 117.30 and 117.60. These levels are expected to contain any correction higher today. Meanwhile, limiting the downside continues to be a belief the Japanese monetary officials will intervene before USD/JPY would fall below the 115 handle, deemed by Japanese exporters as the break even point.
Remarks from Japan's government spokesman Fukuda that the current yen level is too high gave some life to USD/JPY today. Fukuda also said that Japan may cooperate with Europe and the US on FX if needed. This followed Japan MoF's Mizoguchi who reiterated today that Japan was ready to take necessary action if needed on forex markets and added that the dollar is unlikely to stay weak over medium term. However, this was contradicted by the BoJ's Hayami who said the dollar is likely to stay weak for a while. These types of conflicting statements (Shiokawa has mentioned both the dollar weakening to 115 yen and needing to rise above 125 yen in recent days).
The BoJ upgraded its economic assessment for the fifth consecutive month saying exports are strong but CapEx, consumption, housing and investment remain weak. The central bank also said the fall in global stock markets and the dollar has added uncertainty to the export outlook and that it will pay close attention to unstable moves in the FX and equity markets.
Cable looked to fall below the 1.57 level after easing back from an overnight 26-month high of 1.5787, just shy of resistance seen at 1.58. Follow up resistance is seen at 1.5835 followed by the key 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 1.5640, the 38% retracement of the rally from 1.5465, followed by 1.56/1.5590.
USD/CHF also looked to climb higher with resistance eyed at 1.4585, followed by previous highs of 1.4610 and 1.4630. Failure to overcome these levels is likely to lead to a retest its lowest level since October 1999 at 1.4454. Subsequent foundation is seen 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, 1.4735 and 1.4750.