At 2:00:00 AM E-12 Germany July PPI (exp -0.8%, prev -1.1%) t 2:45:00 AM E-12 France July CPI y/y final (exp 1.6%, prev 1.6%) rance July HICP y/y final (exp n/f, prev 1.5%) t 4:30:00 AM UK Q2 GDP (exp 1.2%, prev 1.5%)
The dollar rose to new highs in Tokyo trade, on the back of an impressive run-up on Thursday. USD now stands poised for some lofty gains next week as long as rising stock markets can renew confidence on Wall Street. The major US indices all rose well above their 50-day MA's overnight, signaling renewed strength in global markets. Critics may say that rising stocks in thin summer trade will only be a short term positive for the dollar. But much of the recent move stems from the market's reaction to Wednesday's remarks from a trio of Fed presidents.
The Fed signaled to markets on Wednesday they wouldn't get a rate cut. The reaction in the bond market was negative but positive in the stock market. Given the Dow's rise above 9,000 a possible scenario next week is for more money to transfer from bonds to equities. A resurgence of risk seeking behavior would see selling from recent highs in Treasury prices which would free up cash for portfolio re-allocation. And if investors see US markets stabilize and the dollar steady, a return of foreign capital inflows could be in the making. Moreover, increased confidence in US markets could make US corporate bonds extremely attractive.
However, one caveat is that a retreat in US markets would renew risk aversion, which is a negative for the dollar.
The euro broke below key trendline and Fibonacci support at 97.20/25 and hit a fresh 2-week low of 96.66 in Tokyo. London traders are likely to see this break and take the euro lower if it fails to regain the 97.20 mark. The obvious target is 96.21, the multi-week low from August 6. US equity futures will likely give some direction in Europe given the lack of key data from either the US or Eurozone. Resistance is seen at 97.00 and 97.25. In the bigger picture, the MACD is about to crossover its 9-day exponential average, know as a trigger, signaling that the trend is weakening, and a possible peak has formed in the weekly chart.
A head and shoulder technical formation in Cable is also apparent. Failure to regain 1.5210 resistance would likely lead to a break of 1.5165 support, which marks the 38% retracement of the 1.4038-1.5864 rally. Below 1.5165 would also show a clear break on the HS pattern, clearing the way for 1.4950, the 50% retracement of the same move and trendline support from 1.4080.
Weighing on the pound yesterday was softer than expected UK retail sales in July, posting a 0.3% gain after falling two consecutive months. The market likely anticipated weak growth this week judging from the sharp declines to 1.5210 area before the data.
Today, UK Q2 GDP also risks being revised down to 0.6% from 0.9% on Friday after weak industrial production and weighing on the pound. Given the downward trend in consumer spending (the only source of recent economic strength), GDP data will be closely watched for signs of further weakness and a possible shift towards lowering rates by the Bank of England.
USDJPY also soared to new highs hitting 120.28 in Tokyo. The 20-day moving average has also just crossed above the 50-day moving average, which serves as a bullish sign for the pair. Support stands at 119.80 and 119.30. Resistance is seen at 120.40 and 121.20.///www.forexnews.com