www.forexnews.com
The dollar surged across the board on Monday, lifted by a powerful rally on Wall Street and pessimistic industrial production news from Japan. The greenback dragged the yen and the euro to 3-week lows in a continuation of last week's rally.
Bargain hunters entered the scene to scoop up battered stocks, hauling the Dow to a 447-pt gain at 8711, which is the third largest point gain ever. Last Wednesday witnessed the second largest point rally ever at 495-pt. NASDAQ also felt some relief, closing up 73 pts at 1355.
Also buttressing the dollar were comments made by President Bush's economic advisor Lawrence Lindsey backing a strong dollar during a television interview on Sunday. While Lindsey did advocate a market determined valuation for the dollar, he also confirmed, We are all for a strong dollar .
Weighing on the yen today was the release of disappointing June industrial production data, which showed 0.7% drop vs a 4.1% rise in May and the first decline in five months. A main culprit behind the decline was the slowdown in exports, confirming Japanese officials' fear of the negative impact of the yen's on the export-led economic recovery.
The dollar reached a 3-week high vs the yen at 119.96 during afternoon U.S. trading as the equities rally solidified. Further upside for USDJPY faces interim resistance at 120, followed by key resistance at 120.70, the 50% retracement of the decline from the June 13 high of 125.89 to the July 16 low of 115.50. Immediate support is eyed at 119.50, the 38% retracement of the aforementioned move. The 17-month low of 115.50 has held up so far as a crucial support should the dollar resume its bearish sentiments. With the possibility of a double-dip recession in Japan looming, Bank of Japan officials may be even more ready to intervene to suppress rapid rises in the yen.
Although European bourses posted sharp gains on Monday, the single currency failed to garner much benefit from the rallies. European bourse have been badly battered in recent weeks, undermining the likelihood of an interest rate hike by the ECB or the Bank of England on Thursday. After hitting multi-year lows last week, European equities are benefiting from the Wall Street rallies.
Euro is testing the 98 support/resistance, after shedding more than a cent from its session high of 98.89. Resistance found at 98.50-55, 98.85 and 99.10. Support eyed at 97.75, 97.45-50, and the July low of 97.13. After a spectacular rally to 1.02 in mid-July, the euro has been struggling to continue its bullish trend and broke below parity last week following the release of sickly economic data from the Eurozone and the unwinding of overbought long positions.
While sterling has been able to capitalize on solid economic fundamentals to dominate the euro, the greenback's strong rally is parrying attempts by sterling to recapture its 26-month high of 1.5850. Downside moves in GBPUSD encounters support at 1.5550-5 and 1.5480.
Swiss franc continues to weaken vs the dollar after the SNB unexpectedly cut the interest rate target by 50-bp last Friday. USDCHF shot up two centimes near the 1.49 resistance. Resistance found at 1.4915, followed by stronger selling pressure at 1.5070. Major base is provided at 1.4357, the 43-month low from July 22nd.
The Corporate Accounting Reform bill was approved by both houses of Congress last Wednesday and is due to be signed by President Bush on Tuesday. Officials hope that the passage of such a bill will assuage investor anxieties over corporate malpractice. Interestingly, Qwest's disclosure of a more than $1 billion accounting error did not dampen the stock market on Monday, perhaps because investors have become desensitized to earnings restatements, expecting many earnings restatements before the August 14th deadline.
At 10:00 AM (EDT) Tuesday, the Conference Board will announce its consumer confidence figure for July, expected to indicate a deterioration to 102.5 from last month's 106.4, echoing a decline in the University of Michigan's consumer sentiments survey. The Conference Board report places more weight on labor market conditions as opposed to the U of Mich's emphasis on financial conditions, though the two figures nevertheless are usually closely correlated. Also coming up for tomorrow is the June unemployment rate for Japan, expected to remain constant at 5.4%. And from the Eurozone, producer prices are estimated to reflect a easing in inflationary pressures.