The greenback traded higher in the London session, starting the week where it left off from last Friday, extending its gains from the stronger than expected May non-farm payrolls report. The dollar pushed the euro to 1.3805 and the pound toward the 1.58-figure before relinquished some of its strength in New York trading. The major equity bourses traded lower, with the Dow Jones, Nasdaq and S&P500 down by around 1%, while both spot gold and crude oil drifted lower as well.
There has been speculation that the recent data, particularly the May non-farm payrolls report, point toward a bottom in the economic downtown - prompting an advance in the dollar and declines in stocks amid inflationary concerns. The Fed's current monetary policy remains highly stimulative and we believe it will remain so for the remainder of the year and into early 2010. Thus, we deem it to be premature for markets to begin pricing FOMC rate hikes.
The economic calendar from the US will see on Tuesday, April wholesale inventories, wholesale sales, on Wednesday: the April trade deficit and May Federal budget, on Thursday: weekly jobless claims, May retail sales, April business inventories and on Friday: the June University of Michigan consumer confidence survey and May import / export prices. Retail sales for May are expected to reverse the 0.4% decline in April, improving by 0.2%, while the core retail sales figure is seen edging up by 0.3% from a 0.5% decline a month earlier. The April trade deficit is estimated to edge up to $29.0 billion from a month earlier at $27.58 billion. The Federal budget deficit is expected to surge in May to 195.0 billion compared with $165.93 billion in April. The dollar may come under pressure toward the latter part of the week as the twin deficits come into focus, likely to trigger some profit-taking in the latest greenback run-up.
The euro remained under pressure against the dollar and yen, dropping to 1.3805 and 136.01, respectively. A shift to risk aversion has dragged the euro lower across the board, despite hawkish earlier commentary from ECB Board member Stark. He reiterated the Bank's mandate, saying maintaining price stability will remain the only objective that guides the ECB's decisions. Stark said the current accommodative monetary policy will be reversed when the recovery starts with price risks still to the upside. He was also upbeat, adding that the Eurozone economy is no longer in free fall and beginning to see the first signs of stabilization.
EURUSD hovers beneath the 1.39-level with support starting at 1.3875, followed by 1.3830 and 1.38. Additional floors are eyed at 1.3760, backed by 1.3730 and 1.37. On the upside, resistance is eyed at 1.39, followed by 1.3940 and 1.3980. Subsequent ceilings are eyed at 1.40, backed by 1.4050 and 1.41.