The dollar tumbles to a 7-month low against the euro at $1.25, while tumbling to a 3-month low on ataerde weighted index amid an array of weak US economic data, ranging from manufacturing to industrial production to consumer sentiment. Retail sales rose 1.5% in September, more than twice consensus forecasts, but both currency and bond traders ignored the rise as it mostly stemmed from a 4.2% jump in auto sales, which was the highest since Oct 2001. Sales were up 7.7% on year-over-year basis. Barring autos, sales rose by a modest 0.6%. The report may have shown an improvement on the retail sector but it is dubious to what extent this will be as it is mainly propped by autos.

The positive retail sales news was offset by a decline in the preliminary report of the University of Michigan consumer sentiment survey to 87.5 from 94.2. The decline was broad-based, showing a drop in the expectations index to 79.6 from 88.0 and in the current conditions to 99.6 from 103.7.

Conditions were dismal on the manufacturing after the NY Fed manufacturing index fell by 10 points in October, raising concerns of a possible lull in US manufacturing. Although the NY Fed’s index is not known for its market impact as in the case of the Chicago PMI or the Philly Fed Index, its timeliness is its most valuable attribute, since it precedes the release of other manufacturing surveys for the same month. Traders will mull next week’s Philly Fed Index on whether it will produce a disappointing showing. It is expected up at 19 from 13.4.

The Fed’s report on industrial production showed an unexpectedly weak 0.1% increase in September following a revised 0.1% decline in October. Consensus forecasts have estimated a 0.4% rise.

The 0.7% rise in US business inventories was one of the day’s few positive US data, especially as it was accompanied by further declines in the inventory/sales ratio, which fell to 1.31 months from 1.32 months. Nonetheless, the report follows a 1.0% rise in September.

For more details on the dollar impact, see latest Articles & Ideas

Euro retests $1.24 after trade

The euro shot up by a 1.25 cents hitting to a 7-month high at $1.25 exploiting the broadening weakness in the US. Breaching the $1.2480 reisstance (the 61.8% retracement of the $1.2926-1.1759 decline), the pair now faces resistance at $1.2520.
Monday’s Treasury data on capital flows could generate renewed euro strength if the net foreign purchases of US stocks & bonds come in at less than $60 billion, which would be nearer to the $53 billion trade deficit for the same month. Support edges up to $1.2440, followed by 1.2340—the 50% retracement of the said move. Key foundation now intact at 200-day MA of $1.2250. Subsequent targets seen at $1.2215—the 38% retracement of the move.

USDJPY hit 6-week low

USDJPY lost nearly a full yen, breaching below the 200-day MA for the first time in 3 months amid the deteriorating US data. The decline was also highlighted by its breach of the 109.16 support—the 50% retracement of the 114.86-103.50 rise. Support flows at 108.73, followed by 108.20. Upside starts at the 100-day MA at 109.90. Subsequent resistance stands at 110.50—the 38% retracement of the 114.86-103.50 decline.

Cable closes above $1.8 for first time in 4-weeks

Sterling sealed its rise above $1.8 and closed above the figure for the first time this month capitalizing on the US reports. Cable topped at $1.8064, just above the trend line resistance extending from the Jul 19 high of $1.8769 thru the Sep 28 high of $1.8160. Renewed gains seen facing resistance at $1.8110—the 38% retracement of the fall from the $1.8769 high to the $1.7706 low. A breach above $1.8150, sees resistance at $1.82—the 200 day MA. Support starts at $1.79, followed by $1.7850 and 1.7820—the trend line support from the $1.5608 low thru the 1.7926 low.

At 8:30 AM US October Empire State Fed Manufacturing Survey (exp n/a, prev 28.3) US September core PPI (exp 0.1%, prev –0.1%) US September PPI (exp 0.1%, prev –0.1%) US September Retail Sales ex-autos (exp 0.3%, prev 0.2%) At 9:15 AM US September industrial production (exp 0.4%, prev 0.1%) US September Capacity Utilization (exp 77.5, prev 77.3) At 9:50 AM US October University of Michigan sentiment survey (exp 94.5, prev 94.2) At 10:00 AM US August Business Inventories (exp 0.6%, prev 0.9%)

The dollar continues to trade near its lows against the majors heading into New York trading. In the coming session, traders will digest a barrage of data – starting at 8:30 AM EST with the Empire state Fed manufacturing survey, September PPI and retail sales, September industrial production and capacity utilization, the U Mich sentiment survey and August business inventories. Retail sales is seen up 0.3% in Sep after a 0.3% decline while industrial production is expected to have risen 0.4% after a 0.1% rise. PPI and core PPI are seen up 0.1% and 0.2% respectively.

Also of note for today will be Fed Chairman Alan Greenspan’s speech on recent developments in oil. Markets have closely followed recent moves toward record levels, and subsequently sent global equities lower. The Dow broke beneath the key 10,000-level yesterday on a combination of record oil prices above the $54-level and news of corrupt US insurance companies.

Euro Steady Near 1.24

ECB President Trichet, speaking to Bloomberg TV, said that risks and uncertainties have increased as a result of oil price, adding that the Bank must maintain a close eye on inflation. Trichet feels that oil price at current levels is too high and may have overshot. He said that while the bank is vigilant, the balance of risks remains even and does not consider current policy to be too accommodative. He expects Eurozone growth to continue to grow at an average annual pace of 2.1%, and sees the recovery to continue, with unemployment falling in 2005. Lastly, Trichet deems the current Euro/dollar exchange rate to be appropriate.

EURUSD traded within a narrow range overnight, but remained buoyed near the 1.24-level. Further gains will target resistance at 1.2430, followed by 1.2460 and 1.25. Subsequent ceilings are seen at 1.2540, backed by 1.2570 and 1.26. Support is seen at 1.2380, backed by 1.2350 and 1.23. Additional losses will target 1.2280, followed by 1.2250 and 1.22.

USDJPY Continues to Slump

The Nikkei drifted lower, falling through the 11,000-level, dropping 51.34-pts to close the week at 10,982.95. Rising oil prices have continued to pressure Japanese equities lower. However, the yen has managed to shrug off record oil prices, and has edged higher against the dollar.

Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112.

Cable Trades Within Range

Cable faces resistance at 1.7980, followed by 1.80 and 1.8040. Subsequent ceilings will emerge at 1.8065, followed by 1.81 and 1.8130. Losses will find support at 1.7930, backed by 1.79 and 1.7860. Additional floors will emerge at 1.7820, backed by 1.78 and 1.7760.

Dollar/Cad Little Changed
USDCAD trades near 1.2560, with support seen at 1.2540, followed by 1.25 and 1.2480. Subsequent floors are seen at 1.2430 and 1.24. Resistance is seen at 1.26, followed by 1.2660 and 1.2680. Additional gains will target 1.27, backed by 1.2740 and 1.2770.

USD/CHF Mired Near Lows

Dollar/Swiss continues to struggle amid broad based dollar weakness. Support starts at 1.2375, backed by 1.2320 and 1.2270. Additional floors are eyed at 1.22, backed by 1.2140 and 1.21. Resistance is seen emerging at 1.25, followed by 1.2575 and 1.2650. Further gains will target 1.27 and 1.2780.

AUDUSD Dips Beneath 0.73

The Aussie dipped back below the 0.73-mark, with support seen at 0.7280, followed by 0.7250 and 0.72. Subsequent floors are seen at 0.7140, backed by 0.71 and 0.7060. Gains will target interim resistance at 0.73, followed by 0.7340 and 0.74. Subsequent ceilings are eyed at 0.7450 and 0.75.

No Key Data

The dollar remained mired near its previous session’s lows in early Friday trading. The currency was dragged lower following yesterday’s larger than expected US trade deficit. With markets expecting the deficit to expand to $51.3 bln, the figure climbed by 7% to its second highest level at $54.04 bln. The primary factor behind the burgeoning deficit was the recent spike in oil prices, contributing to a 12% jump in petrol imports and a 14% increase in crude oil imports. The greenback holds steady around 1.24 versus the euro and 109.50 against the yen.

Euro Edges Higher

The euro edged back higher in Tokyo trading, rising back toward the 1.24-handle. Further gains will target resistance at 1.2430, followed by 1.2460 and 1.25. Subsequent ceilings are seen at 1.2540, backed by 1.2570 and 1.26. Support is seen at 1.2380, backed by 1.2350 and 1.23. Additional losses will target 1.2280, followed by 1.2250 and 1.22.

USDJPY Slumps Lower

The Nikkei drifted lower, falling through the 11,000-level, dropping 51.34-pts to close the week at 10,982.95. Rising oil prices have continued to pressure Japanese equities lower. However, the yen has managed to shrug off record oil prices, and has edged higher against the dollar.

USDJPY holds steady at 109.50. Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112.

Cable Mired in Narrow Range

Cable faces resistance at 1.7980, followed by 1.80 and 1.8040. Subsequent ceilings will emerge at 1.8065, followed by 1.81 and 1.8130. Losses will find support at 1.7930, backed by 1.79 and 1.7860. Additional floors will emerge at 1.7820, backed by 1.78 and 1.7760.

USDCAD

USDCAD trades near 1.2560, with support seen at 1.2540, followed by 1.25 and 1.2480. Subsequent floors are seen at 1.2430 and 1.24. Resistance is seen at 1.26, followed by 1.2660 and 1.2680. Additional gains will target 1.27, backed by 1.2740 and 1.2770.

The dollar’s fell across the board, especially against the European currencies after the US trade rose 7% hitting reaching a the second highest level on record. The trade deficit rose 7% to $54.04 billion in August from a revised $50.55 billion. Rising oil imports were the main culprit to the swelling deficit due to a 12% rise in petroleum imports and a 14% in crude oil imports, both of which attained record highs. For more details on the trade deficit, see Articles & Ideas. But the dollar’s decline was relatively understated considering the deteriorating trade balance. The rationale for this is that the dollar was already coming under pressure prior to the data. Reemerging signs of weakness in the Eurozone and tomorrow’s round of US data (retail sales, industrial production and Univ of Michigan sentiment survey) have also tempered the wave of dollar selling.

Oil soars, yields drop, data loom

Crude and heating oil prices hit a fresh record highs in after 2 reports sparked concerns over winter heating-fuel supplies. November crude was up more than $1 to close at $54.76 per barrel after having peaked at $54.88 earlier in the session, while November heating oil closed at $1.549 per gallon, up $0.05 cents after an intrasession peak of $1.55.

More bad news on the jobs market as weekly jobless claims rose by an unexpectedly strong 15,000 to a 352,000 last week, while the 4-week average rose by 4,000 to a fresh 7-month high of 353,000. A Labor Department economist attributed the sharp increase to seasonal adjustments, which sought to consider the 35,000 decrease earlier in the month.

Treasuries continued getting the best out of US equities, with 10-year yields hitting a fresh 2 ½ week low at 4.01%. NY Attorney general Spitzer’s decision to take action against the insurance industry’s practices of bidding for casualty insurance coverage drove down stocks across the board. The Dow fell 107 pts to 9,895, finishing below the 10K level for the first time since Sep 27. All 3 major indices dropped blow their 200day MA, reaching 2 1/2 week lows.

Dollar could gain some upside in the event that industrial production and retail sales post their expected increase. The latter is seen up 0.3% in Sep after a 0.3% decline while the former is expected to have risen 0.4% after a 0.1% rise. PPI and core PPI are seen up 0.1% and 0.2% respectively.

Euro retests $1.24 after trade

The euro’s rally past the $1.24 was short-lived as traders remained cautious ahead of tomorrow’s potentially strong showing of US data. Separately, 3 of the Eurozone leading think tanks (France’s INSEE, Germany’s IFO and Italy’s ISAE) saw revised 2004 GDP up 1.9% from 1.8%.

With the euro testing the $1.2380 resistance, next target comes up at $1.2450-55. Key resistance remains at $1.2480—the 61.8% retracement of the said $1.2926-1.1759 decline. Subsequent target stands at $1.2520. Support starts at $1.2310, followed by the solid 200-day MA of $1.2250. Subsequent targets seen at $1.2215—the 38% retracement of the said move. Key foundation remains at $1.2170-80—the trend line support extending from 98.59 thru 1.0761.

USDJPY little unchanged at 109.60s

USDJPY was little changed despite the US trade figures and the 1.14% overnight drop in the Nikkei closing exactly at the 200-day MA for the first time in 4 weeks. Support starts at 109.12--the 50% retracement of the 114.86-103.50 drop. Next target comes up at the 200 day MA of 109. A breach below 108.70 (Aug low) sees key support at 108.20. Upside starts at the 100-day MA at 109.90. Subsequent resistance stands at 110.50—the 38% retracement of the 114.86-103.50 decline.

Cable shies away from $1.8

Sterling’s rise above the $1.8 figure proved shortly lacked confidence in staying short dollar ahead of tomorrow’s bout of US figures. Cable topped at $1.8044—the trend line resistance extending from the Jul 19 high of $1.8769 thru the Sep 28 high of $1.8160. Renewed gains seen facing resistance at $1.8110—the 38% retracement of the fall from the $1.8769 high to the $1.7706 low. A breach above $1.8150, sees resistance at $1.82—the 200 day MA. Support starts at $1.79, followed by $1.7850 and 1.7820—the trend line support from the $1.5608 low thru the 1.7926 low.

Loonie understated despite contrasting trade data

The Canadian dollar finished lower despite a stronger than expected rise in Canada’s trade surplus to C$7.42 bln from a revised C$6.15, beating estimates of C$6.8bln. Despite the strong report and the disappointing US trade figures, USDCAD edged up above 1.25. Upside stands at 1.2570 followed by 1.2620. Support seen at 1.25 figure, followed by 1.2465-70 and 1.2430 and 1.24.

At 8:30 AM US September Import Prices (exp 0.45, prev 1.7%) US Weekly Jobless Claims (exp 340k, prev 335k) Canada August Merchandise Trade Balance (exp C$6.8bln, prev C$6.2bln) US August Trade Balance (exp –$51.5bln, prev -$50.15bln) At 9:00 AM US Fed Governor Bernanke Speaks (exp n/a, prev n/a) At 10:30 AM US NY Fed’s Geithner Speaks (exp n/a, prev n/a)

The greenback traded lower in London, falling to 1.2371 against the euro and 1.8020 versus the euro. In recent sessions, the major pairs have had sharp corrections, with the dollar relinquishing all of its previous day’s gains in overnight trading. Markets will look closely to data due out later in the session, consisting of US September import prices, US weekly jobless claims, US August trade deficit, and Canada August trade balance. Also of note will be speeches from Fed members Bernanke and Geithner, speaking at 9:00 am and 10:30 am EST, respectively.

The key number today, the US August trade deficit is expected to edge up to $51.5-bln, up from July at 550.15 bln, further highlighting the US external imbalance, which could renew the dollar’s damage. The July deficit fell 9% to $50.15 billion after a record high $55 in June, posting only the second decline in 8 months. The 9% drop in the trade gap was mainly a result of the 9% decline in oil imports. The August data from the US energy authorities shows no significant increase in oil imports volumes. But the soaring prices of oil may have been instrumental in driving up the oil import bill and pushing up the deficit to new highs. We expect a figure under $50 billion to be dollar positive but anything above $53 billion should weigh on the currency. A figure in between may have little directional impact on the currency.

Oil continues to hover above $54 per barrel and shows no signs of letting up. As a result, US equities slumped yesterday – with the Dow Jones dropping toward the 10,000-mark, a level not seen since early September. Global bourses also followed suit, as the Nikkei average closed down 161.70-pts to 11,034.29 and European stock markets opened lower as well.

Euro Recovers

In the ECB’s monthly bulletin, the Bank reiterated Pres Trichet’s previous statement, saying that oil poses the risk of dampening the recovery. Moving ahead, current data does not suggest that domestic price pressures are building. While second-round inflation effects appear contained, the Bank still needs to maintain a close watch.

The euro bounced back above the 1.23-figure overnight, with resistance starting at 1.2370, followed by 1.2380 and 1.24. Additional resistance is seen at 1.2430 and 1.2460 and 1.25. Support beneath 1.23 will start at 1.2280, backed by 1.2250 and 1.22. Subsequent floors are eyed at 1.2170, backed by 1.2140 and 1.21.

USDJPY Drifts

Japan’s government maintained its view that the economy is recovering firmly in its monthly economic report. It also reiterated the need to remain vigilant to the economic impact of rising oil prices and overseas economies.

Support begins at 109.30 and 109. Additional floors are eyed at 108.70, backed by 108.30 and 108. Interim resistance starts at 110, followed by 110.30 and 110.60. Subsequent ceilings will emerge at 111, followed by 111.50 and 112.

Cable Rebounds Above 1.80

Cable trades near the 1.80-level, recovering previous session’s losses. Resistance is seen at 1.8020, followed by 1.8050 and 1.81. Subsequent ceilings are seen at 1.8130, backed by 1.8165 and 1.82. Support starts at 1.7980, followed by 1.7930 and 1.79. Additional floors are seen at 1.7860, backed by 1.7820 and 1.78.

USDCAD Eyes Trade Data

Traders will look closely at Canada August merchandise trade balance, in which markets expect it to edge up to C$6.8bln, up from last month at C$6.2bln. USDCAD trades near 1.2560, with support seen at 1.2540, followed by 1.25 and 1.2480. Subsequent floors are seen at 1.2430 and 1.24. Resistance is seen at 1.26, followed by 1.2660 and 1.2680. Additional gains will target 1.27, backed by 1.2740 and 1.2770.

The dollar’s earlier rally of European trade gave away in early NY trade when oil prices rebounded by more than a $1 per barrel towards record territory on supply worries with US heating oil. Concerns that Thursday’s report on US distillate oil stocks would fall by more than 1.0 million barrels per day were mainly behind the rally. Recurring concerns with supplies in Nigeria also served as a catalyst. Metal commodities took a beating as gold tumbled by more than 3%, copper down 8% and nickel plunged 13%. Liquidation by Chinese margin accounts is said to be the culprit. The route in metals did help the dollar, but only until the spike in oil emerged and begun weighing on US stocks. The Dow fell 98 pts below the 10,000 level for the first time in nearly 3 weeks, while the S&P500; shattered the 200 day MA losing 0.4% to 1,111. US Treasuries ocen again exploited the route in US equities, as the 10-year yield hit a 2 ½ week low at 4.07%.

All eyes turn to the trade deficit

Tomorrow’s trade balance figure from the US is expected to show another above $50 billion deficit in August, highlighting the US external imbalance, which could renew the dollar’s damage. The July deficit fell 9% to $50.15 billion after a record high $55 in June, posting only the second decline in 8 months. The 9% drop in the trade gap was mainly a result of the 9% decline in oil imports. The August data from the US energy authorities shows no significant increase in oil imports volumes. But the soaring prices of oil may have been instrumental in driving up the oil import bill and pushing up the deficit to new highs. We expect a figure under $50 billion to be dollar positive but anything above $53 billion should weigh on the currency. A figure in between may have little directional impact on the currency.

Euro swings as commodities run the show

The euro’s initial 1.2 cent tumble to $1.2225 following gold’s sell-off stabilized as oil prices bounced back up, pushing the single currency back to the $1.2350s. Dollar shorts unwound their positions ahead of tonight’s presidential debate and tomorrow’s key US trade report. A trade deficit above the $53 billion mark could push the euro back beyond the $1.24 figure.

Resistance stands at $1.2380 followed by $1.2450-55. Key resistance remains at $1.2480—the 61.8% retracement of the said $1.2926-1.1759 decline. Subsequent target stands at $1.2520. Support starts at $1.2310, followed by the solid 200-day MA of $1.2250. Subsequent targets seen at $1.2215—the 38% retracement of the said move. Key foundation remains at $1.2170-80—the trend line support extending from the 98.59 low thru the 1.0761 low.

USDJPY unhinged as Fukui seeks to reassure

USDJPY drifted between the 100 and 200 day moving averages of 110.12 and 109.08 respectively after the Ban of Japan kept the amount of liquidity in the system unchanged at 30-35 trillion yen available to commercial banks. BoJ Chief Fukui sought to alleviate concerns about the increasingly cloudy economic outlook in Japan by referring to "maintaining easing measures”, as a way “to escape from deflationary conditions". Traders are increasingly concerned about the protracted rise in oil and its negative impact on Japan’s oil-dependent economy. Meanwhile, the Nikkei-225 index posted its second daily drop on Wednesday, touching the 200—day MA.

Support starts at 109.12--the 50% retracement of the 114.86-103.50 drop. Next target comes up at the 200 day MA of 109. A breach below 108.70 (Aug low) sees key support at 108.20. Upside starts at the 100-day MA at 109.90. Subsequent resistance stands at 110.50—the 38% retracement of the 114.86-103.50 decline.

Cable rides along the commodities route

Once again sterling was saved by external factors, this time thanks to sharp bounce in oil. The currency shunned a strong employment report which showed the claimant count of unemployed falling by 200 to 834,000 in September, its lowest level since July 1975. The unemployment rate was in line with expectations at 2.7%, while average earnings were up 3.9%, better than estimates of a rise to 3.8%.

Initial resistance remains at $1.8050—the trend line resistance extending from the Jul 19 high of $1.8769 thru the Sep 28 high of $1.8160. Next target seen at $1.8110—the 38% retracement of the fall from the $1.8769 high to the $1.7706 low. A breach above $1.8150, sees resistance at $1.82—the 200 day MA. Support starts at $1.7850, backed by 1.7820—the trend line support from the $1.5608 low thru the 1.7926 low.

Loonie mulls Canadian trade balance

The loonie could regain its winning ways ahead of tomorrow’s Canadian trade report expected to show the merchandise surplus to have edged up to C$6.8 billion in August from C$6.2 billion in July. The release is at the same time as that of the US trade figures. USDCAD quietly lurks towards the 1.25 figure, facing support at 1.2465-70 followed by 1.2430 and 1.24. Upside stands at 1.2570 followed by 1.2620.