The dollar fell to multiyear lows against higher-yielding currencies on Monday and remained near a record low versus the euro as investors braced for data expected to show declines in home construction and inflation. Traders await for consumer price and housing construction data and semi-annual testimony from Fed Chairman Ben Bernanke due on Wednesday for their next cue.
Strong inflation data pushed the New Zealand dollar to its highest level against the Dollar since being floated in 1985, and the Australian dollar hit an 18-year peak. Interest rates in New Zealand, Australia and the UK offer investors higher returns than benchmark U.S. rates, which most market players expect to stay at 5.25 percent this year.
News and Events:
The dollar fell to multiyear lows against higher-yielding currencies on Monday and remained near a record low versus the euro as investors braced for data expected to show declines in home construction and inflation. Weakness in those reports would provide fresh incentives for dollar bears, who punished the greenback last week as a deepening housing slump and a decline in retail sales further dented the case for higher U.S. interest rates this year. Some analysts say weakness in the housing sector combined with slowing inflation may even lead the Federal Reserve to reduce benchmark U.S. overnight interest rates early next year. Markets are currently pricing in about a one-in-six chance that the Fed will cut rates by a quarter percentage point in 2007. That leaves traders waiting for consumer price and housing construction data and semi-annual testimony from Fed Chairman Ben Bernanke – all due on Wednesday – for their next cue.
Investors will look for any signs of concern from Bernanke about trouble in the U.S. sub-prime mortgage market or a shift in the Fed’s focus from the core inflation rate to the higher headline figure, which includes energy and food costs. Bernanke “is probably going to stand by his view on inflation, but his comments on the sub-prime meltdown may move the markets,” said analysts which added "In the end, what we are likely to get is a reminder that rates here are lower and that the Fed may actually be forced to cut them."
Some market participants, though, have warned that the dollar’s recent slide may have left the currency poised for a short-term correction. Strategists may start to cut short dollar exposure soon for fear "the market could get caught out by a period of consolidation and correction in favor of the dollar."
Strong inflation data pushed the New Zealand dollar to its highest level against the Dollar since being floated in 1985, and the Australian dollar hit an 18-year peak. Interest rates in New Zealand, Australia and the UK offer investors higher returns than benchmark U.S. rates, which most market players expect to stay at 5.25 percent this year.
Today’s Key Issues (time in GMT):
08.30 GB June Consumer Price Index 0.1% vs 0.3% (MoM)
08.30 GB June Consumer Price Index 2.4% vs 2.5% (YoY)
08.30 GB June Core Consumer Price Index 1.9% vs 1.9% (YoY)
08.30 GB June Retail Price Index 0.3% vs 0.4% (MoM)
08.30 GB June Consumer Price Index 4.2% vs 4.3% (YoY)
09.00 EUR July German ZEW Current conditions 88 vs 88.7
09.00 EUR July German ZEW Economic sentiment 19 vs 20.3
12.30 US June Producer Price Index 0.2% vs 0.9% (MoM)
12.30 US June Producer Price Index 3.6% vs 4.1% (YoY)
12.30 US June Producer Price Index Core 0.2% vs 0.2% (MoM)
12.30 US June Producer Price Index 1.6% vs 1.6% (YoY)
13.00 US May Net Long-term TIC flows $70.0B vs $84.1B
13.15 US June Industrial Production 0.5% vs 0.0%
13.15 US June Capacity Utilization 81.5% vs 81.3%
17.00 US Fed’s Hoenig speaks on US Economy in Nebraska
17.00 US July NAHB Housing Market Index 27 vs 28
21.00 US July 15th, ABC Consumer Confidence -9 unchanged
23.50 JPN BoJ Monetary Policy Meeting Minutes for June
The Risk Today:
EurUsd remains strong, in 1.3760 � 1.3814 trading range, after having hit 1.3814 high last Friday and new record high. A return below 1.3750 and 1.3659 former resistances will put the actual positive trend on hold. Initial minor support holds 1.3750 former trend resistance.
GbpUsd bullish trend is not over yet. It broke up minor resistance area 2.0363 to 2.0366 trading up to 2.0403 high. This would mark the actual minor resistance. Market 2.0100 former trend resistance holds strong support. A break there will open the door back down to 2.0000 pivot point.
UsdJpy rebounded on 120.98 -121.07 low range and hit Friday 122.62 high. Renewed strength will focus on 124.15 late June high. A break toward 124.15 will reopen the way to 125.57 December 2002 high. Initial support holds 120.98 level. A break down will put 119.55 in sight.
UsdChf remains weak after the sharp drop early last week down to 1.1986 low. It reversed 100% the 1.1996 to 1.2472 May-June trend. On the recent downtrend, focus shifted on 1.1996 trend low support. Former support 1.2234 marks the initial resistance.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland