Dollar Rebounds from All Time Lows

[B]- Japanese Yen: Above 119.00 once again

  • Euro: Consumer and business confidence continues to improve
  • British Pound: Nationwide at double digits
  • US Dollar: Jobless claims key[/B]

Dollar Rebounds From All Time Lows
Amidst a very quiet night on the economic calendar, the dollar staged a rebound against all the majors mainly on some profit taking after the EURUSD tagged all time all time highs of 1.3666 in New York trade. Yesterday’s US data was mildly bullish as Durable Goods increased after two straight months of declines while New Home Sales also registered a small uptick. The news provided just the right amount of relief for dollar longs to stall euro’ s relentless advance as it suggested that the US economy was not in any immediate danger of tipping into a recession.
However, it remains be seen if the latest dollar rally is nothing more than just a pause that refreshes on the way to new highs at 1.3700 and perhaps even 1.400. Certainly, the data from the Euro-zone remains euro positive as both business and consumer confidence surveys continue to show improvement. The GFK Consumer survey for May increased to 5.5 from 4.7 projected while French Business confidence improved to 111 from 109.
While the latest Euro-zone data confirms the expansionary scenario for that region, the forecast for US economy is decidedly more murky. We have long argued that employment remains the absolute key to any dollar bullish argument going forward and to that end the weekly jobless claims numbers have taken on a much greater significance for the market this month as they have disconcertingly climbed higher from the 320K level to the 340K level in the past two releases. Therefore, today’s print may generate more volatility in the pair than usual if it once again produces a reading north of 340K. On the other hand, a drop back into the 310-320K would allay the concerns of a slowdown and the greenback may be able to extend its snapback rally further.
In Japan, the yen continued to weaken ahead of tomorrow’s busy Japanese economic calendar which includes CPI and household spending data. The market expects inflation gauges to slip back into negative territory reaffirming BOJ neutral stance and leaving yen vulnerable to more carry trade flows. However, the macro economic picture in Japan continues to show positive momentum with Household spending expected to register a positive reading for the third month in a row while the job- to employment ratio is forecast to remain comfortably above 1 at 1.05. Under the current circumstances the greatest impediment to yen strength is not any intrinsic weakness in the Japan’s economy but rather the incredible sense of complacency by global equity investors as the DJIA continues to make record highs. Should that sentiment change, the direction in USDJPY will most likely change as well.