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At 8:55:00 AM US Redbook Weekly Sales (exp n/f, prev 1.8%) At 9:00:00 AM US BTM/UBSW Weekly Sales (exp n/f, prev 0.5%) At 10:00:00 AM US June Challenger Layoffs (exp n/f, prev 84,97k) At 11:00:00 AM US Weekly ISI Company Index (exp n/f, prev 42.9)
The euro encountered a broad correction across the board on Monday, which extended through trading today and gave the dollar some breathing room as talk of parity cooled for the moment. A confluence of fundamental and technical factors led to the temporary weakness and EUR/USD is now off nearly 2 cents from Friday's high of 99.90. EUR/GBP also eased back from a 33-month high around 65.25 pence and is now trading down one penny at 64.25. But the predictable correction from such sharp gains over the past weeks is expected to be temporary as US risks continue to dominate the market. The overnight slide in US stocks (Nasdaq -4%) may not have affected the dollar but will continue to weigh on sentiment and much needed foreign capital inflows to the US.
Data from the Eurozone showed more weakness on Tuesday after overnight concerns about France Telecom and weak PMI figures weighed on the euro. Today's data showed French consumer confidence slipped to -13 in June from -12 in May while Eurozone sentiment declined across the board bringing the economic sentiment index to 99.6 in June from 99.8. E-12 June Business Climate Indicator fell to -0.43 from -0.2. E-12 June Business Sentiment fell to -10 from -9.0. E-12 June Consumer Sentiment fell to -9.0 from -8.0. As expected, unemployment remained steady at 8.3% in May.
European bourses were down in morning trade as stocks suffered the fallout from Nasdaq sliding more than 4% to close at a five-year low overnight. The DAX and FTSE are both down over 2% and the US futures market is indicating a negative opening. A wave of selling hit Wall Street overnight as more bad news from WorldCom emerged. The stock is expected to be delisted this week as it defaults on billions of dollar in debt.
EUR/USD touched 98 cents in London trade and is having difficulty regaining support turned resistance at 98.20, the 50% retracement of the 96.60 to 99.90 rally. Dealers were eager to square positions ahead of the shortened US holiday trading week making profit taking more appealing to many euro bulls that had run with the recent rally. A break of today's low of 98.00 would target 97.84 (62% of same move). But any further correction today should hold above the 97.65/50 area and ultimately above the 96.60 low and trendline support at 96 cents before a resumption of the uptrend to target parity again. Resistance is seen at 98.63, the 38% retracement of the 96.60 to 99.90, followed by 99.20.
BoE Governor George was quoted today in a paper saying that the central bank will have to hike rates if demand does not slow on its own. George reiterated that UK house prices are growing at an unsustainable rate. However, persistant weakness in manufacturing and relatively steady inflation should keep the BoE on hold at this week's meeting, leaving rates at 4.0%. Moreover, British Chancellor of the Exchequer Brown said that the government's five tests for joining the euro would be rigorous and comprehensive. Both comments helped the pound higher against the euro but not against the dollar as EUR/USD weakness held it down.
GBP/USD fell to a session low of 1.5232 after breaching support at 1.53, then at 1.5275. Support is seen at Friday's low of 1.5220 while resistance is eyed at 1.5275, 1.53 and congestion at 1.5330/40.
While US markets will shut on Thursday in observance of 4 July Holiday, FX markets will have the BoE and ECB interest rate decision at 7:00 then 7:45 AM EDT followed by the ECB's post meeting press conference at 8:30 AM. Both are expected unchanged at 3.25% and 4.0%. Then on Friday is the June US labor report, which is expected to show the jobless rate increase to 5.9% from 5.8% with job creation around 100k in June.
Comments today from Japan's Economics Minister Takanaka and Toyota that the yen may be overvalued helped put a floor under USD/JPY. Markets are also wary after the MoF's Mizoguchi warned that he would act in the forex market if necessary since rapid moves are undesirable.
USD/JPY rallied to a high of 120.80 before edging back to around 120.40 in London. Support is now seen at 120.25/30, which is near the 38% retracemement of the 121.98 high to Friday's 118.36 low. Followup support seen at 120.00 and 119.60.
The Fed's McDonough speaking from Warsaw said accounting scandals and terror threats have so far not hit consumer spending and that confidence remains high. Sees greater risk to investment than consumer spending but still sees the consensus forecast for 3.4% growth in 2003 as reasonable.