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The recent fluctuations in the dollar subsided today as the greenback made smaller movements vs major currencies, kept in check by initial advances in U.S. equities. Cheered by some upbeat earnings reports, the Dow witnessed gains this morning, only to slide down into negative territory in afternoon trading, dragging down the dollar again.
Mixed economic data were released today, but earnings reports steered the stock market. Jobless weekly claims came in better than expected at a 17-month low of 376K, beating the expected 395K and an improvement over last week's revised 407K, after laid-off auto workers found new work last week. Dollar took a hard but brief blow from the Philadelphia Fed Survey, which at a 7-month low of 6.0, showed a steep decline in business conditions from June's 22.2. While the figure does appear gloomy compared to expectations, the fact that the figure came above zero indicates a continuation of a 7-month trend of improving conditions.
According to German think tank RWI, German growth remains too weak to generate many jobs and faces additional risks from the U.S. economy and the appreciation of the euro. The institute said the ECB should keep interest rates at current levels and predicts a rate hike of 50 basis points to 3 .75% at year's end and a 25-bp hike in 2003. While economic recovery seems to be proceeding in the U.S. and U.K., the economic climate of the Eurozone remains shaky, weighed down by sluggish grown in the German economy.
Calming down from its recent upswings, the euro traded in a relatively narrow range, with a high of 1.0099 to a low of 1.0043. Immediate support is seen at 1.0035-40, followed by the psychological parity level. Though 1.00 is not technically significant, its symbolic implications will provide a firm support to prevent a euro decline below the said level. On the upside, EURUSD faces resistance at 1.0115-20.
Bank of Japan Governor Hayami will hold his monthly press conference Friday, and the minutes from the July 11-12 Monetary Policy Meeting will be available. It would be interesting to see what Hayami and the meeting's minutes say about the rising trend of the yen. Japanese officials have issued a flurry of often contradictory statements expressing concern about the yen's appreciation vs the dollar.
USDJPY weakening near 116.68. Immediate supports is seen at 116.50-55, followed by a key floor at the 10-month low of 115.45 Upside movements will face pressure at 117.40, which is the 38% retracement of the decline from 120.31 (July 7) to 115.50 (July 16).
The Annual Report on Euro Preparations from the U.K. treasury confirmed that the public sector is continuing its plans to prepare the country for adopting the euro. The report recommended an adjustment time of 24 to 30 months between a successful referendum and the introduction of euro notes and coins, which suggests holding a referendum by Fall 2003 if euro notes are to circulate before the 2006 general elections.
Like the euro, Cable traded in a narrow range vs the greenback today. Off its 26-month high of 1.5787, GBPUSD has managed to keep itself above the 1.5620 support. In the event of a major dollar rally, a key support is located at 1.5540, the 38% retracement of the upward trend from 1.5143 (July 5) to 1.5787 (July 16). Resistance starts at the 1.5725-30, followed by 1.5787. 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.
USD/CHF consolidating around the 1.4540 level. Mild resistance starts at 1.4580. Subsequent resistance encountered at 1.4610/15. A weakening of the dollar would face pressure at the 1.45 support, followed by the October 1999 low of 1.4454.
The Dow reversed directions midday, closing lower 136 pts to 8405. Weakness in the tech sector weighed on NASDAQ, which also closed down 40 pts or 2.9% to 1357. Keeping with recent trends, volatility shot up during the last hour of trading.
Tomorrow's main focus will fall on the 8:30 AM release of the U.S. May Trade Balance, predicted to show a trade deficit of $34.8 billion, slightly smaller than the $35.9 billion deficit figure from April. Some forecasts, however, expect the imbalance to swell to as much as $39 billion. Also at 8:30 AM (EDT) is the release of U.S. June Consumer Price Index figures. CPI is expected to have risen by a mere 0.1%, confirming benign inflation.