The Dollar slipped against major currencies on Tuesday as US Bond Yields continued to fall from five-year highs hit last week, eroding their appeal to foreign investors. In recent weeks, the Dollar has closely tracked Treasury yields, hitching a ride higher as strong US economic data boosted the benchmark 10-year note’s yield to 5.33% and sent the Euro to nearly a 3-month low against the Dollar.
With little major US economic data this week, traders will look today for the release of BoE minutes of the June Monetary Policy Committee.
Hiroshi Watanabe, Japan’s vice finance minister, said Tuesday he was watching speculative Yen carry trades carefully but said they do not as yet pose a risk to Japan’s economy. He added Japan has no plans to diversify its foreign exchange reserves away from Dollars any time soon.
News and Events:
The Dollar slipped against major currencies on Tuesday as US Bond Yields continued to fall from five-year highs hit last week, eroding their appeal to foreign investors. In recent weeks, the Dollar has closely tracked Treasury yields, hitching a ride higher as strong US economic data boosted the benchmark 10-year note’s yield to 5.33% and sent the Euro to nearly a 3-month low against the Dollar. Yesterday, Euro retreated from a record peak against the Yen and traded lower against the Dollar after a surprise decline in German Business Confidence in June. The decline in the ZEW sentiment index from 24 to 20.3 was globally due to the recent volatility in Bond Markets. The ZEW Current Situation index rose to a new high of 88.7 in June.
Markets are still expecting at least two more interest rate hikes from the European Central Bank this year, while the Fed is seen leaving rates steady at 5.25% for 2007.
With little major US economic data this week, traders will look today for the release of BoE minutes of the June Monetary Policy Committee. May’s minutes concluded with the unusually explicit statement that �should the economy continue to develop broadly in line with the Central Bank expectation, rate could be raised further as necessary�. Accordingly, it seems likely that a large part of the debate in June focused on the timing of the next hike.
On Japanese currency, market sentiment remains positioned against Yen as investors continue to borrow it at low Japanese interest rates in order to buy higher-yielding currencies. Hiroshi Watanabe, Japan’s vice finance minister, said Tuesday he was watching speculative Yen carry trades carefully but said they do not as yet pose a risk to Japan’s economy. He added Japan has no plans to diversify its foreign exchange reserves away from Dollars any time soon.
On Tuesday, commodities linked currencies such as the Canadian and the New Zealand Dollars have been among the biggest gainers on the day. UsdCad went down -0.77% to 1.0627 and NzdUsd rose 0.57% to 0.7587.
Today’s Key Issues (time in GMT):
08.30 GB Bank of England Minutes
08.30 GB May Public Sector Net Borrowing �7.2B vs �1.14B
08.30 GB May PSMCR �7.0B vs �-3.8B
11.00 US June 15, MBA Mortgage Applications previously 6.6%
12.30 CAD May Leading Indicators 0.5% vs 0.4% (MoM)
12.30 CAD May Wholesale Sales 0.3% to 0.5% vs 1.9% (MoM)
14.00 US Paulson testifies on the International Financial System
15.30 US Fed’s Yellen, Geithner speak at San Francisco Fed Conf
17.00 US Fed’s Fisher speaks on Local Economy and Fed in Dallas
23.50 JPN May Merchandise Trade Balance Total 448.5B vs 926.7B
The Risk Today:
EurUsd continued its advance from Friday’s rebound on 1.3260 � 1.3280 area support. Recent break up of 1.3373 resistance gave room for further advance toward 1.3500 and 1.3554 resistance from early June high. Renewed weakness might chase the 1.3277 key support (50% retracement from 1.2872 to 1.3681 advance). Initial support holds 1.3373 former resistance.
GbpUsd is holding over 1.9823 support (61.8% retracement of the 1.9733-1.9969 rise) since Friday’s rebound away from 1.9677 trend low. Further strength will open the way toward 1.9900 key level. On the lower side, a return lower than 1.9700 will chase the next support at 1.9659 (50% retracement of the 1.9184 to 2.0134 advance).
UsdJpy remains strong after hitting 123.75 Monday’s high. Further advance might open the way toward 125.57 December 2002 high. Strong support is located at 122.22 (former Trendline) and initial support holds 123.10 last Thursday/Friday conjunction.
UsdChf corrected from Thursday high 1.2472 and six consecutive day advance. This 3-months high 1.2470 marks the initial resistance. Return of the Dollar bull trend would open the way for a run toward 1.2573 and 1.2771 trends high. On the current downtrend, market is looking for next support 1.2359 (23.6% retracement of 1.1996 to 1.2470 advance) and further set back to 1.2290 (38.2% retracement).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland