Dollar Rose Above 123 Yen

EST Exp Prev00:00 Japan Bank of Japan Monetary Policy Decision 0.5% 0.5%01:00 Japan BoJ June Monthly Report n/a n/a01:00 Japan April Leading Indicator n/f 20.008:30 US Q1 Current Account Deficit $201.0 bln $195.79 bln08:30 US May Real Earnings 0.1% -0.5%08:30 US June NY Fed Manufacturing Survey 10.8 8.0308:30 US May CPI y/y 2.6% 2.6%08:30 US May CPI-x y/y 2.3% 2.3%08:30 US May CPI-x m/m 0.2% 0.2%08:30 US May CPI m/m 0.6% 0.4%09:00 US April TICS n/f $67.7 bln09:15 US May Capacity Utilization 81.6% 81.6%09:15 US May Industrial Production m/m 0.2% 0.7%10:00 US June University of Michigan Survey prelim 88.0 88.3The dollar rose above a technical resistance at 123 versus the yen on Thursday. After breaking the key level at 122.20 yesterday, the pair initiated an upward trend with next target at 123.50.The Bank of Japan is widely expected to leave interest rates unchanged at 0.5% on it policy meeting tonight. US interest rate futures indicated that traders have already priced out a chance of a Fed rate cut within the year. The US bond yield premium over Japan equivalents widened further, pushing the dollar trade higher versus the yen.

Euro Rebounded Versus Dollar

The euro and sterling rebounded against the dollar as traders almost finished adjusting positions according to recent changes in expectations for the Fed rate outlook. The euro broke a technical obstacle at 1.3340, and initiated an upward trend to reverse recent loss. Should the pair stand firm above the 1.3260 base of the decline from 1.3680 to 1.3260, the upward trend holds with next targets at 1.3430 and 1.3520.The US CPI report for May came in basically in line the consensus forecast, and had no impact on the market perception that the inflation tends to be moderate and the Fed is likely to hold interest rates unchanged at 5.25%. The CPI rose 0.7%, above the estimate of 0.6%. The core index rose 0.1%, below the forecast of 0.2%. The euro gained after the ECB council member Axel Weber said the bank is ready to contain inflation, signaling further rate increase. Futures market indicated traders priced in at least one more rate hike by the ECB within the year.

The deficit of US international trade unexpectedly declined in April

The deficit of US international trade unexpectedly declined in AprilThe Ministry of Trade reported today that US international trade deficit unexpectedly declined in April to $58.5bln. Positive data on US international trade is most likely to consolidate dollar against major currencies. The deficit of international trade for March was revised from $63.9bln to $62.4. The analysts expected deficit increase to $64.0bln. Imports fell in April to $187.98bln from $191.63bln in March. Exports increased to $129.49bln from $126.24 in the preceding month.

$ Rallies On Rising Bond Yield

The greenback rallied across the board as global equity market and US bond market declined. The euro broke a resistance at 1.3370 to as low as 1.3320 versus the dollar. The sterling fell sharply below last month¡¯s low at 1.9675 and reached 1.9624 against the dollar. US 10-year Treasury notes yield rose to 5.2%, the highest in 11 months. Also, the yield differential between US 10-year notes and German equivalents widened to a 2 month high. There are two main factors that pushed the yield up and drove bond prices down. Firstly, New Zealand central bank unexpectedly raised interest rates to 8% and the European central bank lifted rates to 4%. This indicates an upward trend in the global interest rates. Secondly, the market finally eliminated speculations about a Fed rate cut within this year under recent robust US data. The dollar remained firm after a report today showed US trade deficit narrowed from 63.5 billion to 54.9 billion in April.

UK industrial production rose by 0.3% in

The index of industrial production in Great Britain rose by 0.3% in April, the National Office of Statistics reported today. The index was expected to increase by 0.1%. In March UK industrial production also increased by 0.3%. Manufacturing output rose in April by 0.3%, which was up to analysts’ estimates, but below the preceding reading (0.6%).The annual increase of industrial production was in April 0.3%, compared with the decrease by 0.2% in March. According to previous economists’ estimates annual increase of industrial production was 0.5%. Annual manufacturing output rose by 1.3%, compared with the preceding reading 1.4% and estimates 0.9%

USD $ Buoyed on Interest Rates

At 2:00 AM Eurozone April Trade Balance (exp 15.4 bln euros, prev 15.5 bln euros)At 4:30 AM UK April Industrial Production m/m (exp 0.2%, prev 0.3%)UK April Industrial Production y/y (exp 0.6%, prev -0.2%)UK April Manufacturing Production m/m (exp 0.2%, prev 0.3%)UK April Manufacturing Production y/y (exp 1.4%, prev 0.9%)At 7:00 AM Canada May Unemployment Rate (exp 6.1%, prev 6.1%)Canada May Jobs-Change (exp 19.0k, prev –5.2k)At 8:30 AM US April Trade Deficit (exp $63.5-bln, prev $63.89 bln)Canada April Trade Balance (C$4.9bln, prev C$4.64bln)The greenback remains supported against the majors following yesterday’s jump in yields for US Treasuries – with the yield on the 10-year edging to its highest level in almost a year at 5.14%. The bond market is pricing in no change in the Fed Funds rate for the remainder of the year, thereby providing support for the dollar – in which prior expectations for a rate cut were detrimental for the currency. Meanwhile, the sterling remains under pressure following the Bank of England’s announcement to leave rates unchanged despite being inline with expectations due to hopes for a surprise 25-bp hike to tame inflation. Economic data from North America consist of Canada’s May unemployment rate, job-change, April trade Balance and US April trade deficit. Canada’s unemployment rate is forecasted to remain unchanged for May at 6.1%, with an increase of 19.0k in jobs-change versus a 5.2k decline in the previous month. The US trade deficit for April is expected to be largely unchanged, moving down slightly to $63.5 billion compared with $63.89 billion from March.

AUD Jump$, GBP Awaits BoE

At 7:00 AM Bank of England Rate Decision (exp 5.5%, prev 5.5%)At 8:30 AM US Weekly Jobless Claims (exp 310k, prev 310k)The greenback is predominantly lower across the board, struggling near 17-year lows versus the Aussie and 30-year lows against the Loonie. The recent weakness is largely a result of strength in the overseas economies rather than weakness in the US economy, particularly given the recent bout of mixed economic reports. Sentiment over interest rate differentials will remain a key factor in the currency market, as traders continue to observe the growing disparities between US economic growth and its overseas counterparts – with the US’ clearly lagging.

Euro Creep$ Higher, Awaits ECB

At 6:00 AM Eurozone April Industrial Orders m/m (exp –1.0%, prev 2.4%)At 7:45 AM ECB June Monetary Policy Decision (exp 4.00%, prev 3.75%)At 8:30 AM ECB President Trichet’s Press Conference US Q1 Productivity (exp 1.1%, prev 1.7%)US Q1 Labor Cost (exp 1.2%, prev 0.6%)The dollar is lower across the board, weighed by yesterday’s comments from Fed Chairman Bernanke. Direction in the foreign exchange market remains largely dictated by sentiment over global interest rate differentials. With Bernanke setting the tone for an unchanged stance for the remainder of the year, traders will scrutinize rate decisions and comments from global central banks this week. Earlier in the session, the Reserve Bank of Australia announced its policy decision, leaving rates unchanged at 6.25%.US economic data slated for release later will see Q1 productivity and labor cost. Productivity in the first quarter is expected to fall to 1.1%, down from 1.7% in the previous quarter. Meanwhile, labor cost is seen climbing higher to 1.2% versus 0.6% from the last quarter.

Euro Fell on ECB Trichet Comments

The euro fell below 1.35 against the dollar after ECB President Trichet talked down the possibilities of further rate hikes in 2008. The European Central Bank lifted interest rates from 3.75% to 4.00% as expected on its monetary policy meeting ended today. Trichet said on the post meeting conference that in medium term risks to prices are on the upside, reinforcing the expectations for two more rate increased this year. He added that the inflation is likely to fall in coming months and risks significantly towards end year. He also pointed out that inflation projections for the year 2008 remain unchanged, leading investors price down the likelihood of rate hikes in 2008 to 60% from 80% a day ago. The dollar was supported after robust US data confirmed the view that the nation¡¯s economy is still in good shape. US productivity index fell from 1.7% to 1.0% in the first quarter. The labor cost rose from 0.6% to 1.8% in the first quarter, above the estimate of 1.2%.

The $ Under Pressure on Bernanke Comment$

The greenback dipped further against its major rivals following the Fed Chairman Ben Bernanke’s comments on the US economy. The euro extended its rally to 1.3553 versus the dollar, while the sterling edged higher to 1.9966. Bernanke said the inflation is very well anchored and the cored inflation seems somewhat elevated. He also said the slowdown in housing market will be a drag on the whole economy for a longer period of time than expected. The expectations of a Fed rate cut have been lowered after a run of robust fundamental data recently. Bernanke’s dovish remarks on the housing market put more pressure on the dollar. The dollar edged up slightly after a report showed US non-manufacturing ISM unexpectedly rose from 56 to 59.4 in May.

Inflation Data in Focu$ Thi$ Week

At 4:30 AM UK May core PPI m/m (exp 0.3%, prev 0.1%)UK May core PPI y/y (exp 2.3%, prev 2.4%)At 8:30 AM Canada Q1 Capacity Utilization (exp 83.5%, prev 82.5%)The dollar remains supported heading into the week against the euro, sterling and yen – as traders continue to price in an unchanged Fed for the rest of the year. Yields on US Treasuries climbed higher last week as the 10-year yield jumping past the 5% mark. The outlook for US growth and inflation remains mixed, resulting in increased scrutiny over incoming economic data. The coming week will see several key pieces of data, consisting of May retail sales, business inventories, producer price index, NY Fed manufacturing survey, consumer price index, current account deficit, capacity utilization, TICS, and the University of Michigan sentiment survey. Traders will closely analyze US inflation reports as well as bond market reaction to gauge market sentiment of the Fed’s interest rate outlook.

NZD $lumped After RBNZ Intervention

The New Zealand $ posted its largest decline in more than a year on Monday after the Reserve Bank of New Zealand intervened the foreign exchange market by selling its currency in the thin trading session.This is the first time the RBNZ intervened the market since it allowed the currency freely float in 1985. The kiwi hit a 22-year high against the dollar last week after a surprise rate hike by the central bank. The governor of the RBNZ, Alan Bollard, said that current level of the exchange rate was unjustifiably high in terms of economic fundamentals. The currency today tumbled 1.9% to 0.7495 versus the dollar, while fell 1.6% to 91.27 against the yen.

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EUR/USD daily outlook

EUR/USD
The dollar advanced Vs the Euro on Friday and the daily low has been set at 1.3320, this way setting a fresh multi-week low. Support is currently noticed at 1.3320 backed by 1.3285 and 1.3250. Resistance emerges at 1.3370 followed by 1.3390 and 1.3430. Daily sentiment remains bearish, hourly momentum being neutral at the time of this writing. The pair continues to stay into the downward channel formed on the daily charts starting at 04/23 low's and 04/30 high's, extended right. The current lower barrier of the said channel is noticed in the 1.3330 area and it may hold a potential greenback test within the next trading sessions. A break would accelerate the current Euro decline towards the 1.3250 mid-term support which is the March's 26 low. We are looking forward for a trend correction which may push the Euro towards the 1.34 zone. Current quote is 1.3350 @ 06:15 GMT

FOREXYARD: Daily Forex Analysis

Economic New$ USD
It has been a very impressive move for the greenback on Friday as it appreciated about 0.5% against the EUR and across most of the board. It started early in the trading session and culminated at the release of the US Trade Balance which narrowed down to -58.5B, a much better figure than the expected 63.5B. The move on Friday caused traders to understand that this might be the first signal to a wider move and the notion on the market is slowly turning into a USD bullish one. Whether this is just local profit liquidation or in fact the beginning of the change, will probably be resolved in the following two weeks. The expectations for an interest rate change have been lowered by the Federal Reserve officials, and we will probably not see any cuts or hikes for the remainder of 2007. As for this week, it is not expected to be heavy with news from the US but there are several key points; the US Retail Sales on Wednesday, the PPI on Thursday, and the Consumer Sentiment and industrial Production on Friday. Most of the figures are expected to help the Greenback on its bullish move.
EUR
Last week ended with some mixed figures coming from the European market causing the EUR and the GBP to depreciate against the USD during the Friday trading session. The French Trade Balance went further down to -2.8B together with the German Trade Balance which also went down but remained in positive grounds of 15.0B. The positive data release came from the UK as the Industrial Production came out higher then the expected 0.2% on 0.3%, which made the GBP depreciation against the USD softer. As for today the most significant news event will come from the UK with the PPI Input expected to be released at 0.6%, and the PPI Output at 0.4%. The important events that are expected to come this week are the UK CPI, the UK Retail Sales, and the Swiss Interest Rate Release.
JPY
It has been a relatively quiet trading session in Asia after the release of the JPY Gross Domestic Product revision, which caused no price shaking. The economy expanded by a revised 0.8% in Q1 from the previous quarter, growing at a faster rate than the preliminary estimate of 0.6%, as the corporate sector continued to spend on new plants and other assets to meet demand abroad for Japanese-made goods. “Today's revised GDP data confirmed that Japan's economic recovery remains intact,” said Masayuki Gotoh, senior economist at the Cabinet Office. Although the picture looks pink for the JPY, it appears that most of the trading bias will come from US and EUR derived events, as most focus this week will be concentrated on the USD movement.
Technical News EUR/USD
The pair is breaking through major key levels as the 1.3400 barrier was broken; we see that a 1.3350 breach has already been made. The daily charts are bearish and the hourlies are unwinding to support the bearish notion. 1.3300 is the next target price.
GBP/USD
There is a very strong support level forming at 1.9620, as the pair was shy of a breach at the early stages of the trading session. If a breach will be made we will probably see the April 1st low of 1.9550.
USD/JPY
The pair is showing moderate sign of a local correction, as we might see it touch the 121.00 levels again before the next move up will occur. The dailies are very bullish, and the hourlies delicate bearish cross indicating that buying on dips might be preferable today.
USD/CHF
A massive 200 pip move on Friday caused the pair to close the week at 1.2350. The daily charts are bullish with plenty of room to run, together with the hourlies which are unwinding from overbought levels to support the bullish notion.
The Wild Card CAD/CHF
The pair is touching record levels of 1.1650 as there is a very clear bearish pattern forming on the 4 Hour chart allowing forex traders to jump into what looks like a very interesting downward move. If the dailies will approve we might see a reverse move that provides a great entry point for a short position.