The Dollar climbed to a 4 � year high against the Yen on Wednesday, helped by data indicating US retail sales growth in May was the highest since January 2006, which many investors took as a sign of a pick-up in US economic growth. US retail sales increased by a better than expected 1.4% in May, consensus was 0.6%. The surge in sales looks to have been driven by the unseasonably warm weather - it was the 13th warmest May out of the last 113 years.
US Treasury debt rose on Wednesday largely due to short-covering, yields have raised steeply since April on a steady stream of stronger economic data, pulling the dollar higher in their wake.
With few data releases or economic events on Thursday, traders await US inflation data on Friday to gauge price pressures in US.
Market players are also keeping an eye on the Bank of Japan’s two-day policy meeting that starts on Thursday and the news conference by BoJ Governor Toshihiko Fukui due on Friday.
News and Events:
The Dollar climbed to a 4 � year high against the Yen on Wednesday, helped by data indicating US retail sales growth in May was the highest since January 2006, which many investors took as a sign of a pick-up in US economic growth. US retail sales increased by a better than expected 1.4% in May, consensus was 0.6%. The surge in gasoline prices turned out to be a relatively modest factor. Instead, the surge in sales looks to have been driven by the unseasonably warm weather - it was the 13th warmest May out of the last 113 years. Limiting the Dollar’s gains was a dip in the US 10-year Treasury yield, which fell from five-year highs even as investors seem more willing to bet that the Federal Reserve’s next move would be a hike in interest rates. Higher US interest rates may raise the attractiveness of Dollar-denominated assets.
Market views: some US investment banks in the last few weeks have upwardly revised their views on US economic growth in the 2Q to a 4% annualized rate, which would be a sharp rebound from the sluggish 1Q.
Markets have also reflected expectations of faster growth. While US Treasury debt rose on Wednesday largely due to short-covering, yields have raised steeply since April on a steady stream of stronger economic data, pulling the dollar higher in their wake. Over the last week, Bond Markets have even begun to price in a chance that the Federal Reserve will raise interest rates next year. Analysts said; �Europe and Japan won’t aggressively raise rates if the US doesn’t, and that will add to strength in the Dollar�.
With few data releases or economic events on Thursday, traders await US inflation data on Friday to gauge price pressures in US.
Market players are also keeping an eye on the Bank of Japan’s two-day policy meeting that starts on Thursday. The BoJ is widely expected to keep rates on hold at 0.5%. But with expectations running high for a BoJ rate hike in August, investors will closely watch a news conference by BoJ Governor Toshihiko Fukui on Friday after the policy meeting. Also, the BoJ is widely seen lifting rates to a 12-year high of 0.75% in coming months, but this expectation has done little to help the Yen lately.
UsdJpy rose 0.84% to 122.58 after hitting intraday 122.77 high, a 4 � -year high. EurJpy jumped up 0.91% to 163.15. GbpUsd and UsdChf were little changed yesterday.
Today’s Key Issues (time in GMT):
08.30 GB May Retail Sales 0.3% vs -0.1% (MoM)
08.30 GB May Retail Sales 3.8% vs 4.2% (YoY)
09.00 EUR May Euro-zone Consumer Price Index 0.3% vs 0.6%
09.00 EUR May Euro-zone Consumer Price Index 1.9% vs 1.9%
12.00 US Treasury’s Paulson delivers remarks in New York on National Security
12.30 US Fed holds Washington hearing on Mortgage Regulations
12.30 US May Producer Price Index 0.6% vs 0.7% (MoM)
12.30 US May Producer Price Index 3.6% vs 3.2% (YoY)
12.30 US May PPI core 0.2% vs 0% (MoM)
12.30 US May PPI Core 1.5% vs 1.5% (YoY)
12.30 US June 9th, Initial Jobless Claims 312k vs 309k
19.40 EUR ECB’s Weber speaks in London
23.50 JPN April Tertiary Industry Index 1.5% vs -2.2% (MoM)
The Risk Today:
EurUsd recent break of the 1.3371 former support reinforced the short-term bear trend developing from the 1.3681 late-April high, and leaves little support till the 1.3277 (50% retracement from 1.2872 to 1.3681 advance). Further weakness might open the way toward 1.3247 end March low. Meanwhile, resistance is located around Friday’s high at 1.3430.
GbpUsd last Thursday break of 1.9823 former support (61.8% retracement of the 1.9733-1.9969 rise) paves the way for a deeper retreat towards 1.9677 trend and yesterday low. A break there could resume bear trend towards 1.9659 (50% retracement of the 1.9184 to 2.0134 advance) and further setback towards 1.9592, April 9 low. Resistance zone is located at 1.9793 Friday’s high.
UsdJpy bull trend remains strong having broken 122.22 former trend high. Market hit today 122.98 high which marks a new resistance. Looking for more advances toward 123.59 and 125.57 December 2002 high. Area from 122.60 to 122.22 (former Trendline) marks initial support.
UsdChf strong advance from last week’s 1.2148 low and 1.2438 former resistance have open the way for a run toward 1.2573 and 1.2771 trends high. Initial support holds 1.2438.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland