The Dollar weakened against major high-yielding currencies

The Dollar weakened across the board on Monday, failing to sustain last week’s gains as investors saw few prospects for a US rate hike, while the Euro and other currencies linked to rising interest rates strengthened. The Euro hit a record high against the low yielding Yen, while the Australian and New Zealand dollars also hit fresh multi-year peaks against the Japanese currency.
The European Central Bank meets on Wednesday and is expected to raise its benchmark rate by 0.25% to 4% and possibly signal further increases.
A French presidential source said that President Nicolas Sarkozy will raise his concerns over Foreign Exchange rates at a Group of Eight summit in Germany this week.

News and Events:
The Dollar weakened across the board on Monday, failing to sustain last week’s gains as investors saw few prospects for a US rate hike, while the Euro and other currencies linked to rising interest rates strengthened. The Euro hit a record high against the low yielding Yen, while the Australian and New Zealand dollars also hit fresh multi-year peaks against the Japanese currency. On Monday, the EurJpy hit 164.36 high and last traded at 164.17. It already moved higher this morning up to 164.61.
The European Central Bank meets on Wednesday and is expected to raise its benchmark rate by 0.25% to 4% and possibly signal further increases. Central Banks in Britain, Australia and New Zealand are expected to hold rates steady at their own policy meetings this week. The prospect of higher rates in these economies has supported their currencies. In addition, with Japanese interest rages still stuck at 0.5%, the lowest in the developed world, investors continue to embrace carry trades, which involve borrowing Yen cheaply to finance purchases of higher-yield currencies and assets. Analysts said that �Risk appetite remains fairly strong, supporting carry trades. The ECB meeting this week should indicate that the ECB has a lot more to do while the economy in Japan is sluggish�.
Yesterday, a French presidential source said that President Nicolas Sarkozy will raise his concerns over Foreign Exchange rates at a Group of Eight summit in Germany this week. The source said Sarkozy planned to discuss currencies at an opening session of the summit on Thursday and would also raise the issue when he met Chinese President Hu Jintao on the Sidelines of the gathering in the Baltic resort of Heiligendamm.

Today’s Key Issues (time in GMT):

08.00 EUR May Euro-zone PMI services 57.1 vs 57

08.30 GB May Purchasing Managers Index - services 57 vs 57.2

09.00 EUR April Euro-zone Retail Sales 0.5% vs 0.5% (MoM)
09.00 EUR April Euro-zone Retail Sales 1.9% vs 2.6% (YoY)

12:15 US Bernanke, Fukui, Trichet speak to conference in South Africa

14.00 US May ISM non-manufacturing 55.4 vs 56
14.00 US May ISM non-manufacturing prices paid 61 vs 63.5

15.00 US Fed’s Warsh speaks in London on Financial Markets

15.30 US Treasury Secretary Paulson speaks on US-China Economic Relations

21.00 US June ABC Consumer Confidence previously -9

23.01 GB May Nationwide Consumer Confidence 92 vs 90

23.30 AUD Reserve Bank of Australia Rate Decision 6.25%

The Risk Today:

EurUsd market continues to favor further downside in EURUSD. A break of last Friday’s 1.3393 new trend low would open the door for a run at 1.3370 (38.2% retracement of 1.2865-1.3683). Minor resistance hold 1.3521 level, last week’s high.

GbpUsd cleared resistance at 1.9900, last week’s high and a sustained move above this level would open the way toward 2.0000 key level. Only a move below the 1.9734 would open the door toward the 1.9677 trend low and resume bear trend towards 1.9659 (50% retracement of the 1.9184 to 2.0134 advance). Initial support is yesterday 1.9814 low.

UsdJpy bull trend remains intact with the focus on the January-February 122.10 to 122.22 highs. Not far off is 122.38 (61.8% of 135.18-101.65 big 5 years decline). Last Friday 122.14 high would mark minor resistance. Support lies at 120.86, May 25th low.

UsdChf recent corrective pullback bottomed last Tuesday at 1.2200, with the recovery from there likely to push to a new trend high above 1.2332 and test resistance at 1.2356 (61.8% retracement of the 1.2575-1.1994 decline). A break of 1.2200 would open the way toward 1.2125.

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Resistance and Support:

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