The Dollar rallied broadly on Thursday after data showed a surprisingly strong gain in US retail sales, up 1% last month, boosting expectations that the Federal Reserve may raise interest rates this year. Philadelphia Fed President Charles Plosser was the latest monetary policy official to hint at the possibility of higher US interest rates. On Thursday, he said current US monetary policy was supportive for growth but the Fed needs to stay vigilant in keeping inflation expectations contained. French economy minister Christine Lagarde said that the ECB may even reconsider the July move after this weekend’s G8 meeting. ECB Executive Board member Lorenzo Bini Smaghi said the bank will do what is needed to lower inflation but it has given indications on policy moves only as far as July.
News and Events:
The Dollar rallied broadly on Thursday after data showed a surprisingly strong gain in US retail sales, up 1% last month, boosting expectations that the Federal Reserve may raise interest rates this year. Meanwhile, the Euro was on track for its biggest weekly decline against the Dollar in three years, buffeted by comments from officials that suggested the European Central Bank was not about to embark on an extended period of monetary tightening.
Yesterday, EurUsd was down 0.73% at 1.5448, on track for its biggest weekly loss in percentage terms since early June 2005. UsdJpy rose 1.01% to 107.93 posting earlier new 3-month 108.08 high. UsdChf jumped 1.02% at 1.0408 after hitting 1.0490 intraday high. GbpUsd dropped 0.87% to 1.9466 the lowest in 4 weeks.
Philadelphia Fed President Charles Plosser was the latest monetary policy official to hint at the possibility of higher US interest rates. On Thursday, he said current US monetary policy was supportive for growth but the Fed needs to stay vigilant in keeping inflation expectations contained. Fed Chairman Ben Bernanke last week linked the weak Dollar to import price inflation, sparking expectations that benchmark rates could rise from the current 2% this year.
By contrast, ECB President Jean-Claude Trichet last week also opened the door to a July rate hike, but policymakers since then have reiterated his message that this would not be the start of a big monetary policy tightening campaign. French economy minister Christine Lagarde on Thursday went one step further, saying that the ECB may even reconsider the July move after this weekend’s G8 meeting. ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the bank will do what is needed to lower inflation but it has given indications on policy moves only as far as July.
Today’s Key Issues (time in GMT):
12:30 USD May CPI ex-food/energy 0.2% vs 0.1% (MoM)
12:30 USD May CPI inflation 0.5% vs 0.2% (MoM)
12:30 USD May CPI ex-food/energy 2.3% vs 2.3% (YoY)
12:30 USD May CPI 3.9% vs 3.9% (YoY)
12:30 USD May Real weekly earnings -0.4% vs -0.5%
14:00 CAD April manufacturing sales 0.1% vs -1.6%
15:55 USD University of Michigan Condition 73 vs 73.3
15:55 USD University of Michigan Expectations 50.5 vs 51.1
15:55 USD University of Michigan Sentiment 59.5 vs 59.8
00:00 JPY Bank of Japan rate decision 0.5% vs 0.5%
The Risk Today:
EurUsd: Market posted 1.5844 high on Monday before turning 3cts lower as low as 1.5379 yesterday. Market shall wait for a return over 1.5800 to confirm Euro is breaking up 1.5400-1.5800 consolidation range. This would reopen the way up to 1.6000 Pivot point resistance ahead of key resistance 1.6200 market target. On downside, further weakness below 1.5400 will put the light 1 �-month uptrend on hold. This may open way down to 1.5000 psychological key level. Support holds 1.5379 Thursday low. Initial resistance holds 1.5587 Wednesday high.
GbpUsd: Cable is turning over the upper Trendline resistance of two-month downtrend 2.0398 � 1.9364 late May, searching for direction. Trading range is set 1.9400 � 1.9850. Psychological 2.0000 level stays into focus. On the downside, current reversal below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Strong support holds 1.9363 20th February and 14th May low.
UsdJpy: Current trend started early this week hit 108.08 yesterday high and 3-month high. This would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high. Any profit taking to and lower than 105 level might send the market back down to 100 � 104 consolidation trading range. Minor support holds 102.58 May 9th low. Initial support holds 104.44 Monday low.
UsdChf: Market is back again in 1.0400-1.0600 trading range. Early January double top 1.1191 marks strong resistance. Initial support holds 1.0148 Monday low. Further weakness may open the way toward 0.9639 17th March low. Market tested 1.0490 high which holds now initial resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland