Dollar remains generally soft on more diversifications talk. Treasury yields spike higher with yield on 30 year T-Bond jumping to new high of 4.733% while yield on 10 year note jumping to new high of 3.926%. Russia central bank's first deputy chairman Alexei Ulyukayev said it will cut the share of its currency reserves invested in U.S. Treasuries and increase IMF bonds' share of reserves placed in foreign banks' deposits. This follows news yesterday that IMF welcomed China's intention to buy up to $50b in IMF bonds. Talk of diversifications supranational currency and use of SDR as a reserve currency might continue to heat up ahead of BRIC Summit on June 16.
While the greenback remains pressured, there isn't much follow through selling today so far and dollar remains in range against major currencies so far. We's still favoring pull back in dollar to end soon with 79.03 minor support intact. Above 80.70 minor resistance will reaffirm the bullish case that the index has bottomed at 78.33 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 bottoming. But after all, there should be limited downside potential and 77.69/92 key support zone should remain intact.
Released in US session, US trade deficit came in slightly wider than expected at -29.2B in Apr. Canadian trade balance unexpectedly turned deficit of -0.2b in April. Canadian new housing price index dropped more than expected by -12.7% yoy in April. Data released from UK were mixed. Industrial production and manufacturing production came in better than expected by rising 0.2% mom, 0.2% mom in April respectively. Though, trade deficit unexpectedly widened to -7.0B. German CPI was confirmed to be -0.1% mom, 0.0% yoy in May. Japanese machine orders dropped more than expected by -5.4% mom, -32.8% yoy in April. Domestic CGPI dropped more than expected by -5.4% yoy in May. Focus will now turn to Fed's Beige Book.
In the coming Asian session , markets expect RBNZ to keep OCR unchanged at 2.50% as Governor Bollard may prefer to reserve some bullets for future use - when unemployment rate rises rapidly. That said, we do not rule out the possibility of another 25 bps reduction Thursday. Since the previous meeting in April, NZD has appreciated by almost 20% against USD. NZD's strength is tightening the monetary policy in nature and we believe the central bank would explicitly talk about the issue in the post-meeting statement. It's also possible for RBNZ to cut rates in attempt to bring the currency down. We believe the central bank will reiterate the statement in April that 'we expect to keep the OCR at or below the current level through until the latter part of 2010. The OCR could still move modestly lower over the coming quarters'. RBNZ will also release the June Monetary Policy Statement (MPS). We expect the central bank have revised down GDP growth to -2.5% and +1% in fiscal 2009 and 2010 from corresponding -2.2% and +3.2% as projected in March. For inflation, CPI probably have been downgraded slightly from +3.1% and +1.6% in fiscal 2009 and 2010, respectively.
USD/CHF Mid-Day Outlook
Intraday bias in USD/CHF remains neutral for the moment and more downside cannot be ruled out. Break of 1.0590 will indicate that recent fall from 1.1740 is still in progress and might target 10366 support next. On the upside, above 1.0846 will flip intraday bias back to the upside and break of 1.0985 will reaffirm the bullish case that USD/CHF has bottomed out at 1.0590 already. In such case, stronger rally should be seen to next key resistance
In the bigger picture, price actions from 1.2296 are treated as consolidation to whole rally from 0.9634, with first leg completed at 1.0366, second at 1.1963. Prior break of mentioned 1.0952 resistance argues that the third leg from 1.1963 has completed at 1.0590 too and should bring strong rise towards 1.1158/1740 resistance. Nevertheless, in such case, we'd favor that such consolidation is development into triangle pattern and hence, upside should be limited by 1.1158/1740 initially and bring one more fall before completing the consolidation. However, break of 1.1963 will serve as the first signal that whole rally from 0.9634 is resuming. On the other hand, note that a break of 1.0590 will indicate that fall from 1.1963 is still in progress for 1.0366, or even further to 100% projection of 1.2296 to 1.0366 from 1.1963 at 1.0033 before completing the consolidation from 1.2296.
Economic Indicators Update
|23:50||JPY||Machine Orders M/M Apr||-5.40%||-0.70%||-1.30%|
|23:50||JPY||Machine Orders Y/Y Apr||-32.80%||-29.50%||-22.20%|
|23:50||JPY||Domestic CGPI Y/Y May||-5.40%||-5.10%||-3.80%||-4.00%|
|01:00||AUD||Westpac Consumer Confidence Jun||12.70%||--||-4.30%|
|06:00||EUR||German CPI M/M May F||-0.10%||-0.10%||-0.10%|
|06:00||EUR||German CPI Y/Y May F||0.00%||0.00%||0.00%|
|08:30||GBP||Visible Trade Balance (GBP) Apr||-7.003B||-6.400B||-6.589B||-6.471B|
|08:30||GBP||Industrial Production M/M Apr||0.30%||-0.10%||-0.60%||-0.30%|
|08:30||GBP||Industrial Production Y/Y Apr||-12.30%||-12.40%||-12.40%||-13.10%|
|08:30||GBP||Manufacturing Production M/M Apr||0.20%||0.10%||-0.10%||0.20%|
|08:30||GBP||Manufacturing Production Y/Y Apr||-12.70%||-12.60%||-12.90%||-13.10%|
|12:30||CAD||New Housing Price Index M/M Apr||-0.60%||-0.50%||-0.50%|
|12:30||CAD||International Merchandise Trade (CAD) Apr||-0.2B||0.8B||1.1B|
|12:30||USD||Trade Balance Apr||-29.2B||-$28.7B||-$27.6B||-28.53B|
|14:30||USD||Crude Oil Inventories||-0.5M||2.9M|
|18:00||USD||Monthly Budget Statement May||-17.5B||-20.9B|
|18:00||USD||Fed's Beige Book||--||--|
|21:00||NZD||RBNZ Rate Decision||2.50%||2.50%|