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The greenback slumped in the U.S. session as equities ran out of steam during midday trading, but the currency failed to garner fresh momentum from a closing hour rally on Wall Street.
Even as prospects for a strong economic recovery dampens in the U.S., the mortgage application index for the previous week soared to a record high at 1,066.9, which indicates resilient strength in the housing sector. The rises in housing prices are helping prop up consumer sentiments by offsetting wealth losses from steep declines in equity portfolios. Separately, import prices rose by 0.4% in July vs a revised 0.3% in June due to a jump in oil prices and a falling dollar, though core prices remain unchanged.
The National Bureau of Economic Research said on Wednesday that the institute's monthly data point to a minor improvement in the U.S. economy. The research organization is the official voice in designating the starting and ending points of a recession. Last fall, it was the NBER who announced that the economic downturn officially had begun in March 2001. Revised GDP data released last week showed three consecutive quarter of declines, which confirmed the institute's recession verdict. While NBER did remark that recent signals suggest a possible respite from the downturn, it has yet to proclaim an official end to the recession until uncertainties surrounding a second downward leg subside.
German economic think tank DIW is urging the ECB to cut interest rates to shore up business confidence and encourage Eurozone economic growth. Inflationary pressures remain tame in the bloc, and with the recent malaise in financial markets and economic conditions, an easing move is looking more favorable. Still, ECB officials left interest rates unchanged at their meeting last week and continue to follow a wait-and-see stance, perhaps waiting for a leading signal from the Fed.
EURUSD clawed past the 97-cent ceiling after being range-bound for most of the European session. 97.55/60 should serve as interim resistance, with stronger selling pressure accumulating at the 98 handle, the 62% retracement of the 97.25 to 99.20 rally. Renewed dollar strength, however, could drag euro back down to the 95.40/50 base.
Retreating from its five-week high of 121.21, USDJPY struggled to keep afloat above the 120 handle. Should the greenback continue to weaken, 119.50, the 50% retracement of the decline from 125.89 (June 13) to 115.50 (July 16) should provide the next target. Further declines in the pairing will open the way to 118.60. Interim resistance is eyed at 120.30/40 and the 121 handle. Attempts to bid the greenback back above 121 should face selling pressure at 121.21, followed by a key resistance at 122.50, the 38% retracement of the 113.81 to 115.50 move.
Cable was also able to capitalize on the dollar's weakness, rebounding 3/4 -cents off its session low of 1.5308. The pairing broke below the bullish flag on Tuesday, putting sterling's ascending trend on hold. Upside seen capped at 1.5450, 1.5470 and 1.5560.
Swissie has fallen near the 1.4940 interim support. Downside moves should run into a floor at 1.4820 with 1.46 as a near term target. On the upside, resistance starts at Tuesday's low of 1.5140, followed by 1.52, the trend-line resistance on the downward trend-line extending from the 1.6108 low (June 2000) through 1.5895 (Jan 2001) and 1.5590 (Sept 2001).
U.S. data set for release tomorrow consist of producers price index and weekly jobless claims. July PPI is expected to edge up slightly by 0.1%, but could come in a bit higher than predicted in light of the rise in energy prices and hints of price pressure in the manufacturing ISM. From the Eurozone tomorrow, the ECB monthly bulletin will give the central bank's assessment of economic conditions. Economic indictors for Japan include domestic wholesale prices and core private machinery orders.