The dollar flirted near its all time lows against the euro and was pummeled against the other major currencies as the US structural deficiencies overwhelmed an improving data picture. Better than expected retail sales and consumer sentiment data helped power the S&P500; to 3-year high at 1184 lift the Dow and the NASDAQ to a 8-month highs at 10539 and 2085 respectively. Despite the rise in stocks, bond prices fared well, with the 10-year yields falling to 4.20% from Thursday’s 4.25%.

Gold prices profited form the dollar’ s ongoing sell-off as it accumulated a $4 an ounce this week hitting a 16-year high of $438.30. As US -led assault in Fallujah ends its 5th day with no certainty in sight as to when the violence will end, and with economists unanimously warning pres Bush against the risks of swelling budget deficits, traders continue sending the US currency to new all time lows against the euro and fresh multi-month lows against the yen, pound and Aussie. Swissy is at fresh 8 year lows while the CAD neared fresh 12 year lows.

US retail sales rose 0.2% last month, overcoming a larger than expected 2.2% decline in auto sales after a 4.3% jump in September. Sales excluding autos rose 0.9%, the highest in 5 months. On a year-to-year basis, retail sales are up 7.6% with ex autos up 8.5%. The recent volatility of the retail sales data have made it unreliable to predict the medium term course of sales, but the figures could improve in the event that oil prices drift to the low $40s and below.

The sharp slowdown in business inventories to 0.1% in September from August’s 0.7% rise could have a downward impact on the revised Q3 GDP report.

Euro flirts around 1.30

The provisional estimates on Eurozone Q3 GDP showed a 0.3% rise from 0.5% in Q2, and undershooting forecasts of a 0.4% rise. This is the second disappointing growth figure of the week, following yesterday’s release of Germany’s Q3 GDP rise of 0.1% from 0.5%, which undershot expectations of a 0.3% reading. Monday’s gloomy ZEW survey has also cast a shadow of the realities of Eurozone growth, but the euro remains boosted at the expense of the dollar’s emerging gloom.

Traders turn to Monday’s Euro zone finance ministers where the topic in focus will be the euro’s rise against the dollar. The European Commission said it shares ECB president Trichet's concerns over the "brutal" rise of the currency. Increased concerns that the euro’s appreciation euro is starting to crimp growth have elicited much verbal intervention from European politicians and bankers.

With eyes set on the $1.30 figure, euro resistance stands at $1.3030 and 1.3070. Support lifts up to 1.2830-35, followed by 1.2790 and 1.2740-50.

Yen soars despite weak GDP

The Japanese currency soared across the board despite a report showing Q3 GDP up a mere 0.1% percent and 0.3% in annual terms, falling far short of expectations of a 0.5% rise q/q and a 2 % rise annually. The dolalr’s continued drop in the face of dismal data from the Eurozone and Japan underscores speculators’ excessive dollar shorts and the swelling US twin deficits.

Support starts at 105, followed by 104.75. Resistance seen at 106, followed by 106.30 and 107. Key resistance stands at 107.75—the 38% retracement of the drop from the 111.70 high thru the 105.27 low.

GBPUSD treads on back of soaring euro

It was a demonstration of euro-driven rally as cable’s run continued on the back of the euro’s gains, shrugging sterling’s misfortunes against the euro, which continues at 10-month lows. An array of sterling negative events and comments leaves cable vulnerable to a renewed attack below $1.8350.

Cable support to start at 1.8475, followed by 1.84 and $1.8375—the 61.8% retracement of the $1.8769-1.7479 move and $1.8315. Upside capped at $1.86, followed by 1.8630.

At 8:30 AM US October Retail Sales (exp 0.1%, prev 1.5%) US October Retail Sales ex autos (exp 0.5%, prev 0.6%) At 9:45 AM US November University of Michigan Consumer Sentiment – preliminary (exp 93.0, prev 91.7) At 10:00 AM US September Business Inventories (exp 0.5%, prev 0.7%) At 1:00 PM US Fed Governor Olson Speaks At 2:00 PM Minutes of the Sept 21st FOMC Meeting

The greenback drifted lower overnight ahead of several key reports due out later in the session. Traders turn to October retail sales report from the US, expected to show a 0.1% rise following a 1.5% increase and a 0.2% drop in September and August respectively. But traders might bid up the dollar slightly if the core figure (excluding auto sales) shows a rise of at least 0.3-0.5%. Also on tap is the prelim Nov reading from the Univ of Michigan sentiment survey, expected to show a 93 reading from 91.7. A strong reading in the core sales figure and a number of at least 95 in the sentiment index should boost US stocks and might support the greenback.

Trader swill also shed some light on the afternoon release of the FOMC minutes from the September meeting, which lifted rates to 1.75%. The usefulness of the minutes could lie in clarifying the extent to which members have sought to tighten policy and whether there were any FOMC members who expressed the need to halt the current tightening cycle.

Also of note, Fed watcher John Berry, in an editorial in Bloomberg, said that the chances of another FOMC rate hike in December are evenly balanced. Contrary to markets already pricing in an 80% chance of another 25-bp hike, Berry sees just as much likelihood for the Fed to hold steady. He feels the upcoming economic data, and particularly the labor report prior to the meeting, to be key in determining next month’s outcome.

Dollar/yen Reverses GDP Effect

Data released earlier in the session revealed that Japan’s economy grew by less than expected in Q3, as GDP increased by only 0.1% q/q, short of 0.5% forecasts, and down from 0.3% in Q2. The annual growth figure also undershot 2.0% forecasts, as the economy grew by only 0.3% on an annual basis. The yen slipped versus the dollar following the data release.

USDJPY climbed just shy of the 107-level to 106.80 following the weaker than expected Q3 GDP data. However, the pair has subsequently drifted beneath the 106-handle, with further losses targeting 105.75, backed by 105.40 and 105. Additional support will emerge at 104.65, followed by 104.20 and 104. Meanwhile, gains will target resistance at 106.40, followed by 106.80 and 107. Subsequent ceilings are seen at 107.35, followed by 107.75 and 108.

Euro Buoyed Above 1.29

Eurozone Q3 GDP was in line with consensus forecasts, rising by 0.3% q/q, and 1.9% y/y. However, the European commission downgraded its growth forecasts for Q4, lowering to 0.2% q/q, from 0.3% q/q and 0.6% y/y, from 0.7% annually. Also, the European commission expects growth between 0.2-0.6% for Q1 2005.

The euro held steady above the 1.29-level, but remained confined within narrow range. Interim resistance is seen at 1.2930, followed by 1.2960 and 1.30. Subsequent ceilings will emerge at 1.3025, followed by 1.3060 and 1.31. Losses will target support at 1.29, followed by 1.2870 and 1.2840. Additional losses will find subsequent floors at 1.28, followed by 1.2750 and 1.27.

Aussie Hovers Near 7-month High

The Australian dollar crept up higher versus the greenback, edging up to a fresh 7-month high at 0.7669. The robust Australian economy continues to provide support for the currency, particularly yesterday’s record low unemployment levels.

Gains will target resistance at 0.7690, followed by 0.7750 and 0.78. Subsequent ceilings are seen at 0.7830, followed by 0.7870 and 0.79. Support begins at 0.7630, followed by 0.76 and 0.7570. A move lower will target 0.7540 and 0.75.

Cable Drifts Lower

Cable remained mired beneath the 1.85-level overnight. Interestingly, according to a report in BBC News, UK’s House of Lords Economic Affairs Committee found errors in the MPC’s methods for forecasting inflation levels, and erroneously may have kept interest rates too high. The committee discovered ‘systematic and persistent errors in the MPC’s record of forecasting inflation.” Adding that, “the persistence of inflation below target and the continued apparent absence of strong demand factors in inflation are evidence that interest rates may have been kept too high.”

Cable faces interim resistance at 1.8460 and 1.85. Subsequent ceilings are seen at 1.8540, backed by 1.8580 and 1.86. Meanwhile, support begins at 1.8340, followed 1.83 and 1.8260. Additional floors are seen at 1.8230, followed by 1.82 and 1.8170.

Dollar/Swiss Weighed

USDCHF finds support at 1.1740, followed by 1.17 and 1.1640. Subsequent floors are eyed at 1.1585, followed by 1.1530 and 1.1460. Gains will target 1.18, followed by 1.1860 and 1.19. Additional gains will target 1.1950, followed by 1.20 and 1.2080.

Currency markets took a breather today amid thin trading activity resulting from the closing of US bond markets in observance Veterans’ Day. The euro edged back up towards the $1.29 figure following Wednesday’s talking down of the currency from a chorus of remarks by European officials. Today, ECB' president Trichet stated it was "necessary" to say what he said on Monday when he described recent exchange rate movements as "brutal" and "not welcome". His deputy Lucas Papademos told an audience in Tokyo that excess volatility in foreign exchange markets was undesirable. Currency traders are increasingly grasping the message of the ECB which seems to focus on the non-desirability of rapid appreciation in the currency rather than absolute levels. Such interpretation leads to inevitability of the breach of $1.30 level before month end.

Traders turn to tomorrow’s October retail sales report from the US expected to show a 0.1% rise following a 1.5% increase and a 0.2% drop in September and August respectively. But traders might bid up the dollar slightly if the core figure (excluding auto sales) shows a rise of at least 0.3-0.5%.

Also on tap is the prelim Nov reading from the Univ of Michigan sentiment survey expected to show a 93 reading from 91.7. A strong reading in the core sales figure and a number of at least 95 in the sentiment index should boost US stocks and might support the greenback.

Trader swill also shed some light on tomorrow’s release of the FOMC minutes from the September meeting, which lifted rates to 1.75%. The usefulness of the minutes could lies in clarifying the extent to which members have sought to tighten policy and whether there were any FOMC member who expressed the need to halt the current tightening cycle.

Euro hovers around 1.29

The euro initially slipped in European trading after Germany’s Q3 GDP rose 0.1% from 0.5%, undershooting expectations of a 0.3% reading. This week’s gloomy ZEW survey remains fresh in traders’ minds ahead of the IFO survey, but the pressing priority remains against the US dollar sentiment wise.

Today’s remainder from ECB president Trichet as well as yesterday’s concerted show of concern (see above) should cap the euro from making any immediate-term jumps beyond the $1.30 level. But the long term potential does remain focused on the $1.30 level and onto 1.3070.

With eyes set on the $1.30 figure, euro resistance stands at $1.3030 and 1.3070. Support lifts up to 1.2830-35, followed by 1.2790 and 1.2740-50.

USDJPY pulls back ahead of GDP

Traders turn to Japan’s Q3 GDP figure due at 6.50 pm NYT expected to show a 0.5% rise from 0.3% in Q2. Yesterday’s 1.5 yen jump in the dollar following the drop in the US trade deficit could have been the work of some yen selling intervention from Japanese authorities. The Bank is suspected to have started making covert intervention and might step it up in the coming days should see more aggressive dollar selling.

Support starts at 106.50, followed by 106.30 and 105.75. Upside seen preliminary capped at 107, followed by 107.50 and followed by 107.75—the 38% retracement of the drop from the 111.70 high thru the 105.27 low. Key resistance stands at 108.10.

GBPUSD down as EURGBP breaches 70 cents

Negative sentiment in sterling is gradually emerging and is most prominent at off euro days. The currency has been dragged past the 70 cent level play as the interest outlook for sterling points to a peak in rates in contrast to that of the Eurozone. Wednesday’s Bank of England quarterly inflation report, also indicated risks to have shifted to the downside in the last three months. Bank of England Governor Mervyn King lowered his growth forecast for 2005 one day after Chancellor Brown appeared to be doing the same.

Cable support to start at $1.8375—the 61.8% retracement of the $1.8769-1.7479 move, followed by 1.8315. Upside capped at $1.8515, followed by $1.8550.

No Key Data
US Fixed Income Markets Closed for Veterans Day

The greenback continues to edge up higher against the majors, capitalizing on yesterday’s better than expected US trade deficit and the Fed’s 25-bp rate hike. Furthermore, markets are continuing to price in another 25-bp hike in the FOMC’s December meeting. The dollar climbed to 1.2867 against the euro and pushed sterling beneath 1.84.

Dollar/yen Maintains Buoyant Tone

Japan’s corporate goods price index rose 1.9% y/y in October, and falling 0.1% m/m, both of which were in line with forecasts. The core machinery orders in September were down 1.9% m/m, falling short of forecasts for a 0.1% rise and up 5.0% y/y, also shy of 6.3% estimates. The quarterly figure was down sharply by 8.4% in Q3. Furthermore, the Japanese government downgraded its view on machinery orders, saying rise in machinery orders is slowing.

BoJ Governor Fukui said he wasn’t sure if the Bank would end current monetary policy in the upcoming fiscal year. He also said that prices were lagging the economic recovery due to corporate efficiency. Although he feels that Japan’s economic growth has slowed, he expects the recovery to be sustainable. Lastly, Fukui reiterated the need to closely monitor oil prices.

Dollar/yen hovers near the 107-level, with resistance seen at 107.30, backed by 107.75 and 108. Additional ceilings are seen at 108.50, followed by 108.80 and 109. Support starts at 106.80, followed by 106.40 and 106. Subsequent floors are eyed at 105.40, followed by 105 and 104.65.

Aussie Unchanged Despite Record Low Unemployment

Australia’s employment rose 43.7k in October, more than double forecasts of a 20.0k gain. The unemployment rate dipped to 5.3% -- marking a record low, beating estimates of 5.6%, and improving from the previous month at 5.5%. The full-time employment level rose to 19.3k, while participation rate stood at 63.7%. The government added that it expects further solid employment gains in the months ahead.

AUDUSD traded narrowly overnight, a move past 0.76 targets 0.7615, backed by 0.7650 and 0.7690. Additional ceilings are seen at 0.7750, backed by 0.78 and 0.7830. Losses will find interim support at 0.7570, backed by 0.7530 and 0.75. Subsequent floors are eyed at 0.7460, followed by 0.7420 and 0.74.

Euro Weighed

The Eurozone’s largest economy continues to struggle, as economic data released earlier in the session showed that Germany’s economy grew by merely 0.1% in Q3, sharply beneath forecasts, and up by 1.3 y/y. Germany’s Q2 GDP was also downwardly revised to 0.4%, from 0.5% q/q, and 1.9%, from 2.0% y/y. The German stats office attributed weak Q3 growth to negative net exports.

The euro corrected sharply after extending to a fresh all-time high yesterday above the 1.30-level. The pair traded narrowly overnight beneath the 1.29-mark. Interim resistance for EURUSD starts at 1.2880, backed by 1.29 and 1.2925. A breach above will eye 1.2960 and its all-time high near 1.30. Support starts at 1.2840, backed by 1.28 and 1.2750. Subsequent floors are eyed at 1.27, followed by 1.2670 and 1.2630.

Cable

Cable trades near 1.8415, with resistance eyed at1.8460 and 1.85. Subsequent ceilings are seen at 1.8540, backed by 1.8580 and 1.86. Meanwhile, support begins at 1.8340, followed 1.83 and 1.8260. Additional floors are seen at 1.8230, followed by 1.82 and 1.8170.

Dollar/Swiss

Support for USD/CHF is seen at 1.18 and 1.1730. Subsequent floors are seen at 1.1680, followed by 1.1620 and 1.1575. Resistance is seen at 1.1950, backed by 1.20 and 1.2080. A move higher will target 1.2150, followed by 1.2230 and 1.23.

The dollar ended mixed as the Fed delivered its widely telegraphed 25-bp fed funds rate hike to 2.0%. The policy statement once again issued a strikingly similar statement to the one in the September. The Committee did make some minor adjustments to the statement reflecting a slight improvement in its assessment. Fed funds futures contracts were little changed after the FOMC decision, continuing to price an 80% chance of 25-bp rate hike in December 14 meeting. These odds have prevailed since last week’s 337K jump in the October payrolls. There’s also over 2/3 probability that rates will reach 2.5% in February 2nd.

See our 2 articles today on the trade deficit and the Fed decision on Forexknews.com

Earlier on the day, the US dollar pushed higher on news that the US trade deficit fell 4% to $51.56 billion in September from a revised $53.55 billion (previous $54.04 billion) in August. The deficit registered its third highest monthly record. Imports fell 0.8% while exports rose up 0.8%. The figure fared on better than expectations of a $54 billion reading. But traders quickly gave back those gains ahead of the Fed decision.

In other news, US Weekly jobless claims edged up to 333K from a revised 331K, while the 4-week average fell to 336K from rev 341K. The Fed did adjust its labor market assessment in the policy statement by removing the word “modest” from it “improvement” rating to the on job market.

Euro shies away from 1.30

A better than expected trade deficit from the US, and an array of comments from European Central Banks and European politicians expressing concerns over the euro’s strength. French PM Rafarrin described the euro’s move against the dollar as a “real problem”, ECB council member (Dutch central bank chief) Wellink called it “worrying”, EU monetary affairs commissioner Almunia said he “was worried”, while Italy’s economy minister Siniscalco said there were discussions regarding a possible coordinated interventions by the national central bankers.

The comments from ECB Chief Economist Issing issuing a discreet downgrade of Eurozone growth to at the lower end of the 2.0-2.5% growth range, remain well in the traders’ mind, but the dollar’s structural imbalances are at the forefront.
With eyes set on the $1.30 figure, euro resistance stands at $1.3030 and 1.3050. Support lifts up to 1.2830-35, followed by 1.2790 and 1.2740-50.

USDJPY regains 107

Today’s 1.5 yen jump in the dollar following the drop in the US trade deficit could have been the work of some yen selling intervention from Japanese authorities. At any rate, the data did warrant the dollar’s rise since they showed the US bilateral deficit with Japan down 5% to $6.10 billion.

USDJPY faces interim resistance at 107.50, followed by 107.75—the 38% retracement of the drop from the 111.70 high thru the 105.27 low. Key resistance stands at 108.10. Support starts at 106.50. followed by 106.00.

GBPUSD drops to 1.84

Aside from the dollar’s general bounce, Sterling was also hurt by the Bank of England’s quarterly inflation report, which indicated risks to have shifted to the downside in the last three months. Bank of England Governor Mervyn King lowered his growth forecast for 2005 one day after Chancellor Brown appeared to be doing the same. King also joined his ECB counterparts by weighing on the latest fluctuations in the currency markets. King said the change in competitiveness against the euro has been “significant”. The sterling fell to a 10-month low against the euro at 70 pence.

Cable support to start at $1.8375—the 61.8% retracement of the $1.8769-1.7479 move, followed by 1.8315. Upside capped at $1.8515, followed by $1.8550.

At 8:30 AM US Weekly Jobless Claims (exp 339k, prev 332k) US September Trade Balance (exp -$53.5 bln, prev -$54.0 bln) Canada September Merchandise Trade Balance (exp C$7.0 bln, prev C$7.4 bln) At 2:15 PM FOMC Monetary Policy Decision (exp 2.0%, prev 1.75%)

The dollar tumbled against the European currencies overnight ahead of several key economic events slated for later in the session. The dollar dropped with 15-pips to its all-time low against the euro at 1.2971 and plunged to a fresh 8-year low versus the Swiss franc at 1.1739.

Traders will look ahead to the US Trade deficit data, and the FOMC’s monetary policy decision. While the Fed is fully expected to raise interest rates by 25-bp to 2.0%, markets will focus more so on the accompanying statement. We expect the Fed to issue a policy statement similar to the one in the September FOMC meeting. We only see a modest dollar rally in the event that the Fed improves its assessment on labor markets and oil. Nonetheless, if the Fed does include a remark on the widening trade deficit, then it is safe to expect a renewed run on the dollar. That is especially the case if the September deficit surges above $55 billion mark. The dissenting rhetoric vis-a-vis the dollar between the Fed and the US Treasury has become protracted to the extent that it drew the attention of European central bankers

Cable Dragged By BoE Report

In the Bank of England’s quarterly inflation report, it said that the overall outlook has remained largely unchanged, but risks have shifted to the downside in the last three months. BoE Chief Mervyn King expects steady growth and low inflation, and deems the soft patch in the economy to be temporary. However, King did lower the growth forecast for 2005, adding that he cannot be confident about output, inflation and interest rates. He also sees risk of greater slowdown in consumer sending, and official data suggests continued weak employment growth through the year.

In the knee-jerk reaction to the report, the sterling sold-off sharply, dropping over 50-pips against the dollar. Cable regained its composure, recovering back above the 1.86-level. Resistance is seen at 1.8625, followed by 1.8660 and 1.87. Additional ceilings are eyed at 1.8740, followed by 1.8780 and 1.88. Losses will find support at 1.8580, backed by 1.8530 and 1.85. Subsequent floors are eyed at 1.8460, followed by 1.84 and 1.8370.

Euro Pops Higher

The euro climbed higher in London trading, climbing against the sterling, yen, and dollar. The single currency rose within reach of its all-time high against the dollar, rising to a session-high at 1.2968. Further rhetoric to stem the euro’s rise had little affect, as the EURUSD pair quickly recovered above the 1.29-level.

A move past the all-time high of 1.2985 will find offers at 1.30, followed by 1.3030 and 1.3065. Subsequent ceilings are seen at 1.31, backed by 1.3140 and 1.3180. Meanwhile, support starts at 1.2940, followed by 1.29 and 1.2880. Additional floors are eyed at 1.2840, followed by 1.28 and 1.2770.

Dollar/Swiss Fresh Multi-Year Low

The Swiss franc traded to a fresh 8-year high against the dollar overnight at 1.1739. Further losses will target 1.17, followed by 1.1640 and 1.1585. Additional floors are seen at 1.1530, followed by 1.1460 and 1.14. Resistance is seen at 1.18, followed by 1.1860 and 1.19. Subsequent ceilings are seen at 1.1950, backed by 1.20 and 1.2080.

Dollar/yen Edges Up

Japan’s September current account surplus exceeded economist’s forecasts of an 8.3% rise, instead rising up by 9.3% y/y to 1.7443 trillion yen. The unadjusted trade surplus was up 11.6% to 1.4365 trillion yen.

Dollar/yen traded in a narrow range near its lows around 105.40. Support starts at 105, backed by 104.65 and 104.20. Additional floors are seen at 104, followed by 103.70 and 103.40. Resistance starts at 105.75, followed by 106 and 106.40. A move higher will target 106.80, followed by 107 and 107.35.

AUD Buoyed As Consumer Survey Soars

Australia’s Westpac November consumer sentiment survey rose to a 10-year high, up 2.3% to 121.8, compared with 119.1 in October. According to Westpac Chief Economist Bill Evans, the RBA’s decision to leave interest rates unchanged last week served as a positive factor in the sentiment survey. The RBA held rates unchanged at 5.25% when it deliberated monetary policy last week. Furthermore, the appreciation of the Australian dollar has offset some of the impact from higher oil prices.

The Aussie edged up above the 0.76-handle on the heels of a robust consumer sentiment survey. Interim resistance is eyed at the session high of 0.7615, backed by 0.7650 and 0.7690. Additional ceilings are seen at 0.7750, backed by 0.78 and 0.7830. Losses will find interim support at 0.7570, backed by 0.7530 and 0.75. Subsequent floors are eyed at 0.7460, followed by 0.7420 and 0.74.