Economic data was on the dollar positive side as consumer prices in the US came in a hotter than expected 0.2% MoM on the core metric while housing starts printed a much weaker than anticipated 529K. The higher inflation brought some speculation back on the table that the Fed might be bullied into raising interest rates before expected while the weak housing data put pressure on risky assets which have been negatively correlated with the US dollar. Stocks closed out on a high note, however, reversing most of the early NY losses and should this trickle through to the overnight sessions we would expect EUR/USD to test 1.50 once again.
We expect that EUR/USD 1.50 level to remain formidable resistance and there was talk in NY trading that semi-official names were sellers ahead of that mark. Indeed, the pair has only managed to close above three times this year. USD/JPY found some legs and rallied off the 89.00 intraday lows towards the 89.40/50 zone. Higher US Treasury yields acted as a catalyst here and the robust correlation between these two assets continued in earnest. Gold added another $2 today and was sitting near the $1144 zone as we write. The precious metal should again find some legs above $1150. Look for a daily trendline drawn from the October 2008 and February 2009 highs by $1061/1062 as the next important resistance zone.