Dollar Regaining Momentum into European Session, Sterling Pressured

on June 25 2009 2:13 PM

Dollar was lifted by FOMC statement's message of easing deflation threat yesterday. Some retreat was seen Asian session on rising stocks but the greenback is gathering momentum in early European session as European indices open mildly lower. The Japanese yen lost some ground on risk appetite but downside is so far limited. Gold and crude oil are staying in tight range after recovery from yesterday lost steam.

One of the focus today is Sterling's noticeable weakness against dollar and Euro. While the pound is still staying in range of 1.6185 and 1.6617, it's clearly lacking momentum to stage an upside breakout so far. On the other hand, there is threat from a possible head and shoulder bottom in EUR/GBP. Such reversal pattern will be confirmed in case of a break of 0.8603 resistance which could be the trigger of some broad based selling in the pound and drags down GBP/USD.

As mentioned yesterday, dollar index's fall from 81.36 should have completed at 79.56 already and the corrective structure of such fall is supportive to further upside in the index. We're anticipating a break of 80.94 resistance to signal resumption of rise from 78.33, to be confirmed by break of 81.36/47 resistance zone. Further rally should be seen to next key resistance at 82.62 (38.2% retracement of 89.62 to 78.93 at 82.64). in such case.

On the data front, New Zealand current account deficit narrowed to -1.25b in Q1. Australia leading index rose 0.7% in April. Eurozone industrial orders is expected to post -32.8% yoy fall in April. Finalized Q1 GDP in US is expected to be unrevised at -5.7%. Initial jobless claims is expected to remain above 602k.

USD/JPY Daily Outlook

USD/JPY's break of 95.88 resistance indicates an intraday low is at least in place at 94.87. Considering bullish convergence condition in 4 hours MACD, fall from 98.87 is possibly completed and intraday bias is flipped back to the upside. Break of 97.18 resistance will confirm and bring retest of 98.87 resistance next. On the downside, while another fall cannot be ruled out for the moment, focus will remain on reversal signal in case of another fall since we're holding on to the view that fall from 98.87 should be contained by 93.84/94.44 support

In the bigger picture, price actions from 99.67 are treated as consolidation in the larger up trend from 87.12 only, in form of triangle pattern. Fall from 98.87 is viewed as the final leg of such consolidation and should be contained above 93.84 support to conclude the consolidation. Break of 98.87 will be an important signal that whole rally from 87.12 is resuming and break of 101.43 will pave the way to next key level at 110.65.

However, note that a break below 93.58/84 support zone will invalidate the bullish case. Instead, it will revive the bearish case that USD/JPY has completed a head and shoulder top (ls: 99.67, h: 101.43, rs: 98.87) and will in turn indicate that whole down trend from 124.43 is still in progress.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised

22:45
NZD
Current Account Balance Q1
-1.25B
-1.17B
-4.03B
-4.026B

0:00
AUD
Conference Board Leading Index Apr
0.70%
--
0.40%
0.60%

9:00
EUR
Eurozone Industrial New Orders M/M Apr

0.00%
-0.80%

9:00
EUR
Eurozone Industrial New Orders Y/Y Apr

-32.80%
-26.90%

12:30
USD
GDP (Annualized) Q1 F

-5.70%
-5.70%

12:30
USD
GDP Price Index Q1 F

2.80%
2.80%

12:30
USD
Core PCE Q/Q Q1 F

--
1.50%

12:30
USD
Initial Jobless Claims

602K
608K

14:30
USD
Natural Gas Storage

101B
114B

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