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At 2:45:00 AM E-12 France June HICP y/y (exp n/f, prev 1.5%) E-12 France June CPI y/y (exp 1.4%, prev 1.4%) E-12 France June CPI m/m (exp 0.0%, prev 0.0%) E-12 France June HICP m/m (exp n/f, prev 0.0%) At 3:00:00 AM E-12 Italy May Retail Sales y/y (exp 2.0%, prev 1.2%) E-12 Italy May Retail Sales m/m (exp n/f, prev -0.2%) At 3:30:00 AM E-12 Italy June Business Confidence (exp 95.6, prev 95.3) At 4:30:00 AM UK July CBI Monthly Total Orders (exp 14.8, prev 17.0) UK Q3 CBI Quarter Business Confidence (exp -17.2, prev 21.0)
The dollar gave back some of its recent gains against the euro and yen but still held firm around 99 cents and 117.00 yen respectively. A slight correction in the greenback was expected but sentiment now seems to be shifting towards regarding both the Eurozone and Japanese economies in worse shape if the US continues to slide. Constant selling of the dollar since April also appears to have run its course in the near term with the euro topping at 1.02 and the USD/JPY bottoming at 115.50. Meanwhile, EUR/JPY continues to slide this week, losing one percent to a 10-day low around 116.00.
Dealers woke up to the fact that the dollar was acting like a one-way trade for the past few months with the other currency only serving as a vehicle to sell dollars. So with little reason to buy euro or yen based on fundamentals, they got whip lashed yesterday by dollar short covering. Some traders have also revised their short-term outlook for the dollar, saying the euro could test 97 cents, while the dollar may rise as high as 120 yen in the near term.
USD/JPY fell to a session low of 116.94, but maintained above support at 117.00, which marks the 38% retracement of the 115.50 to 117.90 rally. Key support lies at 116.45, the 62% retracement of the same move and as long as the dollar holds above this level it should add to recent gains.
BoJ Governor Hayami said today he hopes dollar won't fall further and also remarked on the necessity to go forward with banking reforms. Meanwhile the Nikkei ended below the 10k level for the first time since February as it followed Wall Street lower, countering a barrage of comments from officials last night which tried to talk up Tokyo shares. Yesterday, EconMin Takenaka said the direct impact of US stock price falls on Japan's economy was not serious and added that the US economy, supported by strong productivity gains, was stronger than the stock market suggested. FinMin Shiokawa agreed that Japan's stocks and yen are resilient despite falls in US stocks, but added that the government should study public fund injection to help the failing bank sector.
Eurozone data today consist of France June CPI, France June HICP, Italy May Retail Sales, Italy June Business Confidence, UK Q3 CBI Business Confidence and UK July CBI Total Orders.
EUR/USD held above its overnight one-week low of 98.60, but struggled to maintain above key technical support at 99.00, which marks the 62% retracement of the rally from 97.13 to 1.0201. Technically, the first indication that EUR/USD topped out at 1.02 was a break below key support at 1.0025/30. Violation here blew past parity, then hovered at 99.65, before coming under further pressure. This level now marks resistance and will have to be overcome to avoid targeting its overnight low of 98.60 ahead of congestion around 98.00/30 and the previous low of 97.13. Resistance is seen at 99.60 and 1.00, but should not pass 1.0030.