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A 250-pt morning rally in the Dow lifted the dollar from its overnight declines. The currency traded in a relatively narrow range vs the major currencies in the afternoon in comparison to the volatility it faced in previous days as equities struggled to hold its morning advances.
Fed Chairman Alan Greenspan testified in front of the House Committee on Financial Services, and since his speech was almost identical to the one he delivered yesterday, the markets showed little reaction today.
As the U.S. stock market surged at the opening bell, euro shed its gains from the European morning session. Off its session high of 1.0162, EURUSD fell more than 1 cent to 1.0034 before rebounding near 1.01. Support is seen at 1.0035, which is the 38% retracement of the rally from 98.35 (July 11th) to today's session high. Subsequent support/resistance found at 1.00, which is both a psychologically significant level and technically significant as the 50% retracement of the aforementioned rally.
According to a report from the European Commission, the competitiveness of Eurozone exports deteriorated by about in the second quarter. The report attributes the erosion to the depreciation of the euro in trade-weighted terms, which seems to go against common sentiments that an appreciation of the euro would be the underlying cause. While the rise of the euro would make Eurozone exports relatively more expensive, it also benefits the Eurozone by keeping down inflation by making imports cheaper. Conversely, U.S. multinational corporations are welcoming the dollar's decline since a weaker currency since it leads to more competitive pricing of U.S. goods and enables corporations to repatriate earnings at more favorable exchange rates.
Data from the Eurozone indicated that the economic climate remains anemic. May Industrial Production (m/m) grew a meager 0.1% while the year-to-year figure fell 1.2%. Bolstered by U.S. equities gains this morning, European bourses surged across the board after breaking multi-year lows last week.
Japanese Minister of Finance Masajuro Shiokawa came forward today to confirm that MoF officials are in contact with his counterparts in other countries, leading to a immediate surge in the dollar vs the yen to above the 116 figure . USDJPY faced downward pressure at 116.70 today. Subsequent resistance is seen at 117.20. A fall in USDJPY will encounter interim support at 116.25, and a breach below this level should face key support at the 10-month low of 115.45.
The MPC Minutes of BoE July meeting showed a surprising 8-1 vote to keep interest rates on hold at 4%, with BoE Deputy Director Mervyn King opting for a 0.25% rate hike as he argued that inflation would be rising sharply above target in the future. But other members said a rate hike could have an unusually sharp impact on confidence.
Cable edging higher above the 1.57 handle but still off yesterday's 26-month high of 1.5787. Upside movements will face pressure at the 1.58 resistance, followed by 1.5835. A longer term resistance found at 1.5915, the 68% retracement of the decline from the October 1998 high of 1.7354 to the June 2001 low of 1.3680. Support starts at 1.5622, today's low and a support/resistance level seen on the weekly chart. If GBPUSD falls below that level, 1.5540 will provide a subsequent support as the 38% retracement of the rally from 1.5143 (July 5) to 1.5787 (July 16).
USDCHF closely mirrored EURUSD movements today, demonstrating the two rate's tendency to show negative correlation. 1.4585 serves as the immediate resistance, 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.
Wall Street witnessed a rally of more than 250 pts in the Dow during the first few hours of trading as bargain hunters and cheerful earnings reports bolstered the equities market. The rally then lost steam midday, followed by volatile climbs and dips, but indices still managed to close higher across the board. Breaking recent trends, the Dow closed higher at 8541, holding on to a gain of 68 pts. NASDAQ also turned in a good performance with a 21-pt gain at 1397.
Markets attention tomorrow shifts to the 10 am EDT release of June US Leading Indicators Index and July Philadelphia Fed survey at 12:00 pm The former is expected to have fallen to 17.5 after having jumped to 22.2, the highest figure in 4 years. The Leading Indicators Index is expected to have been flat in June after May's 0.4%. It will still show the 8th positive number out of the last 9 months. But recall that in June 20, when these 3 indicators were released with such strong showing, the dollar failed to show any gains. This time around, the case is not expected to be any different as the dollar places emphasis on equities and earnings.