Dollar continues to engage in range trading against major currencies with some choppy movements. Not much guidance is provided from stocks as DOW rebounded strongly in lat session after earlier sell off and is still staying in range above 8600 level. Nikkei breached 10000 level to 10022 in Asia but closed slightly lower at 9981. While crude oil continues it's rally and breached 72 level briefly, Gold is lagging behind and stays below 960 level.
Diversification talk continue to be a key factor in driving the dollar but markets are reassessing recent news. Russia and Brazil announced plans to buy $20b of IMF bonds after China said they'll buy $50b. India will likely follow with similar announcement soon. But some economists interpret that as an act to increase BRIC's voice in the global markets rather than a shift reserves away from dollar.
Technically, with 79.03 support holds, we're still favoring the case that dollar index has bottomed out at 78.33 already. Though, some more consolidation might be seen first. Above 80.70 minor resistance will reaffirm this bullish and will bring rally to next key resistance at 82.63 (38.2% retracement of 89.62 to 78.33 at 82.64) for confirmation. Below 79.03 will indeed indicate that another low below 78.33 is likely before bottom. But after all, limited downside potential and 77.69/92 key support zone should remain intact.
Sterling is so far the strongest currency this week, lifted further by optimism that the worst in recession is over in UK. NIESR said yesterday that the UK economy is estimated to grow 0.1% in May and 0.2% in April. While NIESR acknowledged that monthly figures are erratic, it also affirmed that the monthly profile points to March as having been the trough of the downturn, with output rising in April and May. EUR/GBP's break of 0.8574 low indicates that recent fall is still in progress and the pound will likely continue to outperform Euro in near term.
The RBNZ decided to keep interest rate unchanged, for the first time in a year, at 2.5% after June's meeting as 'there are signs that international economic activity is stabilizing, and international financial conditions are improving'. That said, the central bank indicated that the monetary policy will remain expansionary for sometime by stating that the OCR will be kept 'at or below the current level through until the latter part of 2010'. On the data front, Japan finalized Q1 GDP was revised up to -14.2% annualized contraction and -3.8% qoq contraction. Australia lost less job than expected by -1.7k in May but unemployment rate jumped to 7 year high of 5.7%.
Looking ahead, US retail sales, initial jobless claims and business inventories will be released. After 2 months of decline, US retail sales probably increased +0.9% mom in May as led by rise in auto sales and gasoline prices. Unit auto sales recorded a jump to 9.9M in May, the highest level since December. Although part of the sales increase was driven by dealers' discounts, we still believed some automakers did well last month and contributed increase in nominal sales. Core retail sales (excluding autos, gasoline and building materials) should have risen +0.4% mom, following a -0.3% drop in April. Chain-store sales, which declined -0.6% in May, were worse than consensus as high- to mid- end retailers' performance was disappointing during the month.