www.forexnews.com
At 11:00:00 AM US Kancas City Fed Manuf. Index (exp n/f, prev 19) At 3:00:00 PM US May Consumer Credit USD (exp 5.9 bln, prev USD 8.8 bln)
The dollar decline is back on track after late announcements on Friday that two major US corporations had inflated earnings. US equity futures are in the red and European bourses are down across the board, as investors are again feeling jittery about the prospects for further declines on Wall Street due to accounting woes on the eve of WorldCom hearings. Surprising weekend comments from Japanese FinMin Shiokawa that the dollar could retest its post September 11 lows around 115 yen also put major pressure on the greenback this morning leading to a sharp 1.5 cent drop against the euro to 98.75 and a 200 pip fall to 118.55 yen.
Shiokawa's remarks about USD/JPY likely reaching 115 may have been more thinking aloud than the Ministry of Finance would have wanted, but it reconfirmed the notion amongst FX traders that the dollar is set for further losses. Furthermore, comments from Greece's central banker and ECB council member Garganas that uncertainty surrounding the strength of the US recovery and external imbalance risks to the US makes the consensus view that we will be seeing an orderly depreciation of the dollar.
Indeed last week's rally in US equities may prove to be just a bear market rally as traders brace themselves for further declines. By most accounts US shares are still overvalued on a historical basis, and now that real earnings are subject to suspicion the risks to further selling are even greater.
EUR/USD rocketed to a session high of 98.74 after testing the 97-cent level on Friday. That area marked the key 50% Fibonacci support of the 94.10 to 99.90 rally and failure to penetrate that level despite the strong surge in US equities on Friday gave hope to bargain hunters wanting to long EUR/USD. However, key resistance at 98.80, the 62% retracement of the 99.90 to 97.15 decline, must first be broken to give confirmation of a return to the rally. Failure to overcome this mark could lead to profit taking before continuing higher. Support is seen at 98.50, 98.20, 97.50 and 97.10.
The euro also reasserted itself against the pound after falling over one pence since peaking at a 33-month high of 65.25 2-weeks ago. EUR/GBP rose to a session high of 64.35 but weakness against the euro did not hold sterling back from rising against the fledgling greenback. Cable rose to a session high of 1.5343, up one cent on the day and up nearly 2 cents from Friday's low of 1.5145. Resistance is seen at 1.5330, 1.5360 and this year's high of 1.5377.
UK input and output prices were tame in June showing an absence of inflationary pressures in the pipeline. Output prices on both monthly and annual basis were flat while input prices fell 0.9% m/m. Price data for manufacturers show a recovery for profit margins after the sector fell into a prolonged recession last year.
USD/CHF also fell as accounting woes should continue to keep safe haven flows out of US assets in the near term. The dollar plunged 2 centimes to a session low of 1.4869. Support is seen at 1.4870, the 62% retracement of the 1.4735 to 1.5084 rally, followed by 1.4830 and 1.4800.
USD/JPY broke through support at 119.00 and 118.80 and fell to a session low of 118.57, just short of 118.35 where the BoJ last stepped in to sell yen for dollars and euros with the help of the Fed and the ECB. Selling pressure cooled off around 118.50 as intervention fears resurfaced given the sharp 200 pip fall in USD/JPY today. But it is doubtful whether traders will be dissuaded from further dollar selling given Shiokawa's comments over the weekend that USD/JPY could target 115. Moreover, it may be argued that the BoJ will have to wait for the dollar to begin rising of its own accord before initiating intervention. Resistance is seen at 119.50/60, 120.00 and 120.45/50.