US economic data will be the primary focus among currency traders this week as soft fundamentals continue to undermine the dollar. The key highlights include the March manufacturing and services ISM, February factory orders, and the March labor report. Markets will also closely focus on comments from Fed Chairman Bernanke when he testifies before the congressional Joint Economic Committee on Wednesday.
The reports released earlier in the trading session included the March Chicago PMI and the New York NAPM index. The Chicago PMI edged out consensus estimates for a rise to 46.0 versus 44.5 in February, instead advancing to 48.2, albeit still beneath the key 50-level. The New York NAPM index slipped to 425.8, down from 427.7 a month earlier in February.
Fed Chairman Bernanke's testimony on Wednesday will likely offer a somber assessment of the economy in light of the recent bout of soft data and maintain its weak outlook for the coming months. Markets have largely priced in further deterioration in economic fundamentals and at least another 25-basis point reduction in the Fed funds rate - so we expect the testimony's impact on the currency market to be minimal with a bias for a slightly weaker dollar.
The euro shot up higher against the greenback overnight, creeping closer to its all-time high just above the 1.59-figure. The euro continues to be supported on a combination of upbeat economic data from the Eurozone and the ECB maintaining its hawkish bias on monetary policy.
The Eurozone reports saw March flash inflation edge higher to 3.5% versus 3.3% in the previous year while annual M3 money supply growth slipped to 11.3% in February from 11.5% a year earlier. Meanwhile, the March Eurozone consumer sentiment survey remained unchanged at minus 12 and the economic sentiment drifted to 99.6, down from 100.2.
We look for the euro to reach a new all-time high this week past the 1.59-mark. Support starts at 1.5760, followed by 1.5720 and 1.57. Additional floors are eyed at 1.5665, backed by 1.5630 and 1.56. On the upside, resistance begins at 1.5850, followed by 1.59 and 1.5950. Our interim target in the coming weeks remains at 1.60.