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At 8:55:00 AM US Weekly Redbook Store Sales (exp n/f, prev 1.8%) At 9:00:00 AM E-12 July German ZEW Economic Forecast (exp 67.3, prev 69.6)
The dollar struggled to stave off further losses against the majors today after hitting a new 9-month low of 118.24 yen in London trade. EUR/USD broke back above the 99-cent mark but had difficulty to overcome an overnight high of 99.10 as weak economic fundamentals in the Eurozone failed to give euro bulls the conviction to open new longs. Yen strength also pushed the euro to a session low of 117.00 but traders held back as they contemplated whether or not to send the dollar below the 118.25/30 support which could possibly trigger an intervention by Japanese monetary authorities.
EUR/USD looks set to test an overnight high of 99.10 after spending the Asian and London sessions consolidating above support at 98.70/80. Resistance is seen at 99.20, 99.50, 99.70 and 99.90. Renewed momentum could carry it past 99.90 and through parity but more weak data from Germany and increasing angst from the EU over tensions in the growth and stability pact dominated the European session making euro gains difficult. Support is seen at 98.70/80, 98.50 and 98.15, which should contain any minor correction.
As expected, German jobless claims rose by 8k in June, putting the figure well above 4 million total and reaching 9.8% unemployment from 9.7%. The June forecast will highlight Chancellor Schroeder's failed electoral campaign but more worrisome perhaps was the surprisingly large 1.3% drop in May industrial production which defied the market's expectation for a 0.5% m/m rise and brought the annual rate to -3.9% from -2.3% previously. The Finance Ministry said in a statement that strikes in the engineering industry and a large number of holiday weekends impacted output in May.
Major economic news from Germany later today is the ZEW business survey for July which is expected to fall to 67.3 from 69.6 and highlight the fact that the recent rise in EUR/USD is still a dollar negative story and not a euro positive one.
This prompted the German think tank DIW to forecast a mere 0.6% rise in GDP this year and 2% next, lower than the average expectation of 0.9% and 2.4%. Slow domestic demand in the Eurozone's largest economy had the EU worried and in a report released today they highlighted the fragile nature of a recovery dependant on external demand. EU's Solbes also said that the positive euro impact (lower inflation) may outweigh the effects on competitiveness and exports.
But Brussells remains worried about growing state budget deficits and a lack of commitment by France and Italy to stick to the agreement of the Growth and Stability Pact which would have them reduce their budget deficits to zero by 2004. France's budget minister said it will bring the budget to balance as soon as possible but without hurting growth, indicating that they would not be constrained by a target.
In Britain the trade deficit shrunk more than expected in May as exports outpaced imports both globally (1.72 bln) and non-EU (1.69 bln). Higher exports to non-EU countries was the main contributing factor, particularly to the US.
Sterling remained firm against the dollar after hitting an overnight 26-month high of 1.5450. Cable broke though the previous high of 1.5375 but its steep 3 cent rally since Friday's low of 1.5140 could make it susceptible to profit taking before continuing higher. Support is seen at 1.54 followed by 1.5375, 1.5330 and 1.53. These levels should hold up any correction in the pair for an attempt to break 1.5450 on its way to 1.55.
USD/JPY looking to break back below the June 28 low of 118.35 which after testing at 118.30 earlier in the day. The last time the pair weakened to this point prompted the BoJ to enlist the ECB and the Fed in an intervention to check the rising trend of the yen. A breach below this level will see little support until 116.90 the 200-week moving average, which means the Japanese monetary authorities may feel the need to intervene to stem the decline. Such fears have kept a floor under the dollar but selling pressure around 119.00 has so far contained the upside and recent comments from FinMin Shiokawa over the weekend primed dealers for the next move lower.
Shiokawa said that the dollar could revisit its post September 11 lows around 115 yen but today clarified that a fall to 115 would be unacceptable and must be stopped. However, the damage was already done and the dollar decline is back on track as dealers looked for opportunities to short the greenback across the board this morning, keeping it under pressure.
Given the high correlation between recent movements on Wall Street and the dollar, today's focus will remain on the most recent accounting scandals that have rocked the nation. Investor sentiment continues to deteriorate and the possibility of more WorldCom bombs to wreak havoc on the markets is an unquantifiable risk to the dollar. US President Bush's speech on possible reforms to the accounting industry and rogue CEO's today, as well as the markets reaction will be the main focus in the US given the lack of key economic data. Integral to restoring confidence in the markets will be evidence that those who have committed crimes will go to jail.