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Breaking a miserable streak of sell-offs, Wall Street advanced on a spectacular rally today to post broad gains, but only gave a moderate boost to the ailing dollar. Future prices before market opening had predicted another gloomy day, yet U.S. equities managed to sustain its gains through the afternoon. After weeks of taking cues from the stock market, the dollar's behavior is showing some divergence from sentiments on Wall Street.
In the second largest point gain ever, the Dow shattered the crucial 8000 resistance and surged 495 pts, or 6.4% to close at 8187. NASDAQ vaulted by 61 pts, or 5% to close at 1290. After weeks of afternoon nose-dives, bargain hunters stepped in today to rescue U.S. equities in anticipation of the market having hit the capitulation point.
While European bourses were battered by more declines today, they soared to positive territory on the guiding light of the Wall Street rally. Preliminary inflation data from Germany came in benign today, and taken together with yesterday's neutral import and producer price indices, inflationary pressure looks under control in the Eurozone's biggest economy. ECB president Wim Duisenberg said that Eurozone inflation is expected to hover above the 2% target rate this year, but inflation fears have subsided slightly. While prices seem fairly stable in the Eurozone, economic growth appears to remain stagnant. Business confidence indicators from Italy and leading indicators from Belgium showed a dip and suggests that economic fundamentals remain sickly.
Despite the sizable gains in U.S. equities, the euro held firm vs the dollar until the last hours of trading, which may be indicative of a corrective move after dollar's stunning recovery on Tuesday. EURUSD shot up to a session high of 99.82 before the opening of U.S. markets but has since slid near 99.40. Immediate support starts at 98.75, followed by 98.45. Upside momentum in the euro faces resistance near the session high of 99.80, though a breach through parity could take the single currency up to 1.0020-5.
Although Japan's trade surplus rose to 1,301 billion yen in June, a 71.4% year-on-year increase from last year, the decline in imports rather than a favorable rise in exports provided the driving factor. On a monthly basis, exports fell by 3.9% in June, posting the first drop in six months, while imports slid by 10.6%. The decline in exports will weigh on monetary decisions by the BoJ and the MoF, particularly since Japanese officials were already anxious about the adverse effects of the appreciating yen on the country's export-dependent economic recovery.
USDJPY underwent a severe decline from a session high of 117.58 to 115.88 as U.S. equity futures performed miserably before the opening bell. Midday stock gains bolstered the dollar to a more stable consolidation point around 116.10-40 vs the yen. Key support lies at 115.50, the 17-month low that offered a base for last week's declines. A break below that level will undoubtedly lead to another round of intervention hints from Japanese officials, if not the act itself. In the event that BoJ allows a break below 115.50, the next key technical support is found at 114.35-40, the 62% retracement of the rally from 101.24 (Nov 1999) to 135.15 (Feb 2002). Resistance is seen at 117.90 and 118.35.
Cable continues to mimic the euro today, profiting from the dollar's broad demise. The dollar has edged up to around 1.5726. Support starts at 1.57, followed by a key base at 1.5580, the 50% retracement of the 1.5143 (July 5) to 1.5850 (July 18) rally. The session high of 1.5791 will provide a point of resistance, and additional downward pressure will be encountered at the 26-month high of 1.5850.
The euro fell to lowest level vs Swiss franc since September 2001 to 1.4435 on fears of dismal stock performances in European bourses. The dollar is losing ground to Swiss franc as well, dipping to a session low of 1.4534. Immediate support is viewed at 1.4475, followed by the 40-month low of 1.4357.
German economic think tank IFO will be releasing its assessment of business sentiments in July at 4:00 AM (EDT) tomorrow, which is expected to show a decline from last month's figure of 91.3. While Eurozone officials welcome the appreciation of the euro as an inflation fighter, exports from the Eurozone could suffer from a stronger euro, thereby undermining economic recovery. Markets will also be watching for the U.K. June retail sales, Japan June retail sales, and U.S. June new home sales.