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Despite a broad sell-off on Wall Street, the formidable greenback parried selling pressures and staying afloat above its overnight lows vs the major currencies. While dollar suffered overnight declines, sliding to multi-year lows vs the euro, sterling, and Swiss franc, a minor correction in the afternoon gave the currency a moderate lift.
The trade deficit for May showed a record breaking $37.64 billion, primarily the consequence of a surge in demand for imported automobiles, food, and consumer goods. The dollar took a plunge immediately after the news release, since economists have long warned that the ballooning current account deficit can remain sustainable only if foreign investment continues to pour into the U.S. But with the demise of investor confidence in U.S. stocks, foreign investments may continue to flow out of the country, exerting depreciatory pressures on the dollar. Meanwhile, June Consumer Price Index stayed benign at 0.1%, causing little stirring in the market and buying the Fed more time to mull over an interest rate hike.
Italian consumer confidence for June tumbled to its lowest level since Spring 1999. Weighed down by poor consumer confidence numbers from Italy and Belgium in addition to a dismal performance in European bourses, the euro is struggling to break the 1.0150 resistance, off from its overnight 31-month high of 1.0210. Although the euro received a boost from the release of the burgeoning U.S. trade deficit, the single currency subsequently edged lower and now lingers in a congested zone near 1.0130. Support eyed at 1.0085, while any upsurges faces resistance at today's high.
USDJPY weakening, near this week's 17-month low of 115.44. Japanese officials have issued a flurry of statements expressing concern over the rising yen, but it is uncertain where their point of tolerance lies. Immediate support starts at 115.44, followed by crucial support at 115, which is the level that Finance Minister Shiokawa had designated as a floor expected by Japanese officials.
After an overnight rally, GBPUSD is trading in a narrow range around 1.5785. Support eyed at 1.5620, and follow up support found at previous resistance of 1.5580, which is the 38% retracement of the rally from the 1.5413 low (July 5th) to the overnight 1.5854 high. Short term resistance lies at 1.5840-50. Subsequent strong selling pressure occurs 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.
USDCHF dipped to 1.4355 overnight, hitting a fresh 40-month nadir. While the dollar has pulled itself above 1.44 level, the medium term outlook predicts further dollar weakness. Today's 1.4355 provides a key foundation, since it also lies on the support trend line drawn from 1.6482 (March 15) to 1.4760 (June 26). If the bearish steak continues, USDCHF will face a follow up barrier at 1.4130, a major point of resistance from November 1998.
Weighed by warnings from Microsoft and Sun Microsystems of weak earnings outlook for the upcoming quarter, the stock market was subjected to a broad sell-off. The Dow dipped below September 2001 closing low of 8235 to accumulate a 322-pt loss or 3.8% to 8086 in the last hour of trading.
Coming up for next week, the University of Michigan will release its final assessment of July sentiments survey on Friday. Its preliminary figure released last week estimated sentiments at 86.5, significantly below the expected 92.7, showing that consumers are still hesitant to resume spending. Also on Friday is the preliminary estimate of U.K. Q2 GDP. From the Eurozone, German think tank IFO will present its views on current business climate on Thursday. Key data for Japan includes ESRI consumer sentiments, June unemployment, and core CPI.