The Washington Post reported this morning that John Snow has accepted Bush's job offer to replace Treasury Sec O'Neill with an official statement coming perhaps as early as today. Snow, another industry executive was also the former chairman of the Business Roundtable and has been a strong supporter of tough standards in corporate governance. But the FX market is most interested in his stance on the dollar. A lawyer and economist by training, it is hoped he can be comfortable with both Wall St and Washington and more importantly, become the president's spokesman for an economic "growth" plan. Interestingly, it is not a "stimulus" package as that would imply the previous capital injections failed as it was also O'Neill's and the Fed's hesitation over further stimulus. Sources also say Stephen Friedman, former Goldman Sachs co-chair with previous Treasury Secretary Rubin, will replace Lindsey as Economic Council head.
Despite the business friendliness of these possible replacements, the dollar has languished this morning as traders mull over whether Snow will be agaisnt the "strong dollar" policy seeing that he was he and other industry execs have had profits squeezed by the dollar's sharp rise from 1995. Dollar also down as US equity futures point to another rocky road on Wall Street this week. Uncertainty over rising oil prices from the 2-week old strike in Venezuela, the awaited Bush administration reaction to Iraq's declaration of no weapons, and last Friday's surprise jump in joblessness, has US equity futures pointing to a negative start on Monday. UAL is also to file for bankruptcy today.
Last week the market gave back 5% in the Dow and S&P after a selloff in front of key resistance at 9000 in the Dow and 950-965 in the S&P. Prices then closed below trendline support at 8790 and 930 in the Dow and S&P, retested and failed, which could be seen as the first indication of an important reversal. Key resistance remains at 930, the 61.8% of the 955-895 decline. Another test and failure here (today or tomorrow) would bode poorly for the index and indicate that further near term losses were likely this week. More weakness on Wall St should also keep dollar sentiment depressed. EUR/USD reached a session high of 1.0118, below Friday's spike high of 1.0127. Subsequent selling held above 1.0080, the minimum 38.2% retracement of the sharp 1.00-1.0127 rise. Further selling should hold above 1.0060 and 1.0050, the 50% and 61.8% of the same move. Key support seen at 1.0030, a previous resistance zone which happens to be trendline support as well. Resistance is seen at the previous highs of 1.0140 and 1.0168.
European Central Bank member Issing from Germany said today the central bank still has room to move on rates. His comments came after German October Industrial Production surprised on the downside, falling 2.1% and taking the annual rate lower to -1.4% from -1.3%. The European Central Bank also suggested today in a paper that the EU give more leeway for candidate countries under pressure to meet the Stability Pact's deficit ceiling of 3% of GDP, to improve recovery prospects but not to slow down on their stated budget goals. The news had little sway on the market. GBP/USD reached a new 2-week high of 1.58 today, but the rate of assent from 1.5412 on Nov 27 may make further near term gains difficult. Below support at 1.5750 could lead to profit taking targeting 1.5660 and possibly as low as 1.5550. Bank of England's Bell said today the outlook for the UK and world economy is somewhat brighter. UK consumer spending strong in the near term, but house price growth is not sustainable. The longer the house prices surge goes on, the greater the risk for a sharp slowdown. Sees little risk of deflation but says the MPC would act if need be.
UK November Producer Prices fall 0.2% and 3.4% for output and input on the month. Annual prices up 1.2% output but down 0.9% for input prices. USD/JPY is trying to hold above trendline support at 122.65 after falling sharply through key Fibonacci support at 123.20 on Friday's and dropping 3-yen from a high of 125.70 to of 122.43 this morning, a one-week low. So far, support seen at 122.40, the 50% of 119.10-125.70, has held. Below here targets 121.60, the 61.8% of the same move. Last ditch support seen at 121.40, a previous low. Below here opens the way for 119.10 lows. Key resistance seen at 123.20/30. No further weak yen comments were made today after a barrage last week. Officials did comment on the US economics team with Japan's Vice Finance Minister Kuroda saying he saw no major reaction in markets to O'Neill's resignation and that this hadn't caused a change in forex policy. He didn't comment on the yen's sharp rise on Friday, which if it continues, would likely provoke further yen weakening comments from Japan.
This week's key data for Japan consist of machinery orders, current account, trade balance, the Tankan Survey due on Friday. US economic indicators include wholesale inventories, retail sales, third quarter current account, PPI, business inventories, and consumer confidence. The FOMC will also be meeting on Tuesday, though the Fed is widely expected to keep rates unchanged at 1.25%. Other data schedule for release are German industrial output, German ZEW survey, German trade balance, French CPI, French HICP, French industrial production, French manufacturing output, and French trade balance, UK PPI, and UK trade balance. //www.forexnews.com