Dollar rose on Monday on Oil price dip and unexpected strong HSBC earnings

The Dollar rose against Japanese Yen and Swiss franc on Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC. US and global stocks markets were cheered by news that European banking heavyweight HSBC posted unexpectedly strong Q1 earnings and a fall in oil prices. Investors will watch a big slate of economic data on Tuesday, especially April US retail sales, as well as speeches by Fed officials for clues on whether the US central bank will cut benchmark interest rates again next month. Short-term interest rate futures, which track market expectations for Fed monetary policy, show an 86% chance that the Fed will keep benchmark lending rates unchanged at 2% when it next meets on June 25.

News and Events:

The Dollar rose against Japanese Yen and Swiss franc on Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC. The investors’ appetite increase for risk revived interest in carry trades, helping to lift the high-yielding Euro, Sterling and Australian and New Zealand dollars against the US currency. In carry trades, investors borrow against the Yen or other low-yielding currency to buy assets offering higher returns.

Yesterday, UsdJpy was trading up 0.96% at 103.87. UsdChf was up 0.36% at 1.0449. EurJpy jumped 1.34% higher to 161.35, helping the euro zone currency to erase losses against the Dollar. EurUsd last traded up 0.28% at 1.5532. Analysts said there is a strong correlation between the EurJpy and Stocks, and gains in the currency pair tend to feed through to EurUsd. Traders also said the Euro’s advance against the Dollar did search for stop-losses above the 1.5500 area amid thin liquidity, with most European markets closed.

US and global stocks markets were cheered by news that European banking heavyweight HSBC posted unexpectedly strong Q1 earnings and a fall in oil prices. Investors will watch a big slate of economic data on Tuesday, especially April US retail sales, as well as speeches by Fed officials for clues on whether the US central bank will cut benchmark interest rates again next month. Chicago Fed President Charles Evans said the consumer was “under a lot of stress” and the economy faced downside risks.

Short-term interest rate futures, which track market expectations for Fed monetary policy, show an 86% chance that the Fed will keep benchmark lending rates unchanged at 2% when it next meets on June 25. At the same time, some signs that European growth is stumbling has stirred speculation the European Central Bank could edge towards trimming rates for the first time in nearly a year. This could boost the Dollar, whose appeal has been undermined by the Fed’s aggressive rate cuts.

Today’s Key Issues (time in GMT):

08:30 GBP April CPI 0.8% vs 0.4% (MoM)
08:30 GBP April CPI 3% vs 2.5% (YoY)
08:30 GBP April RPI 0.6% vs 0.3% (MoM)
08:30 GBP April RPI 3.9% vs 3.8% (YoY)
10:10 EUR Fed�s Pianalto and ECB�s Noyer speak, Paris
12:20 USD Fed�s Bernanke speaks on liquidity, Georgia
12:30 USD April Export prices 0.8% vs 1.5%
12:30 USD April Import prices 1.7% vs 2.8%
12:30 USD April Retail Sales ex-autos 0.2% vs 0.1% (MoM)
12:30 USD April Retail Sales -0.1% vs 0.2% (MoM)
14:00 USD March Business Inventories 0.4% vs 0.6%
15:00 EUR Finance Ministers� meeting, Brussels
17:00 USD Fed�s Fisher, Hoenig and Yellen speak
21:00 USD weekly ABC/Wash Post Index -45 vs -46

The Risk Today:

EurUsd: Euro recent return over 1.5400 and 1.5500 ended the three weeks downtrend. Initial resistance hold 1.5528 former support ahead of 1.5571 yesterday high. Pivot point holds 1.6000 resistance ahead of key resistance 1.6200 market target. On downside, psychological 1.5000 key level marks strong support before 1.4500 pivot point.

GbpUsd: Cable is testing 1.9500 level since Friday. Further pressure may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Renewed advance over 1.9600 and 1.9800 may reopen the way toward 2.0000 psychological level. Actual trading range is 1.9400 � 1.9800.

UsdJpy: Recent 1 �-month uptrend found resistance around 105. Further advance would bring market up to 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Profit taking on 105 might send the market down to 100 � 104 consolidation trading range. Minor support holds 102.58 yesterday low.

UsdChf: Market hit 1.0625 two-month high last Thursday. But last Friday return 1.0500 did reopen the way down 1.0200 and toward 0.9639 17th March low. Early January double top 1.1191 marks strong resistance.

Resistance and Support:

By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland