NEWS / Central Banks

Dollar supported by FED hawks

By Marc Spaelti - ACM Senior Trader Yesterdays News and Events: The Euro fell to a new 1-month low of 1.2565 against the Dollar, the pair remains in a short-term bearish trend that started 8 days ago at 1.2960. The Dollar also remained high against the YEN, Swiss Franc and Pound, but no advance could be made and besides repeats of hawkish FED comments BY Olson and Pianalto, there was no news to support the Dollar up here. The US government posted a $42.8Bln Federal Budget deficit in May, a 20% increase over the previous month. Dollar bulls acknowledge the fact that the 8-month cumulus of $227Bln is 16% lower than lasts years $272Bln. ECB??™s Bini in Ljubljana, capital of Slovenia who is to become the 13th country to join the Euro zone this coming January, said past experiences would help Slovenia avoid mistakes in the change-over. He did not comment on interest rate levels. The Bank of Japan has recently been forced on numerous occasions to inject liquidity into the overnight market in order to keep interest rates near zero%. This has lead Economics and Finance Services Minister Yosano to say that he expected a responsible decision by the BOJ to end ???the current abnormal policy??™. Yosano is a known hawk but his remarks come at a time when a rate hike seemed to have been postponed to September at the earliest, it could fuel speculation about bringing this date forward again. FED Bernanke late night said that China and the world economy would be better of with a flexible Yuan, this could pose some downside risk to USDJPY. Todays Key Issues: UK May CPI data at 8.30am. PPI was widely weaker yesterday as fuel prices had declined in May, CPI today is expected to remain unchanged, YoY growth stands at 1.5%. Germany ZEW Economic Sentiment Index at 9amGMT is forecast to drop again, to 45 from 50 in May, a positive development could help the Euro break its bearish trend. At 12.30GMT US May PPI are forecast to grow at a slower 0.5% after 0.9% in April, May Retail Sales should still increase by 0.1% (0.5% last). At 2pm April Business Inventories are believed to increase 0.5%. The Risk Today: 1-H EURUSD: It the most interesting of the major pairs, the only one to reach new levels yesterday. The short-term trend-line has reached 1.2605. It is not impossible to break to the downside of the red triangle to reach medium-term support near 1.25, but we see the risk of a break to the upside and correction towards 1.2750 as the much likelier scenario today. For the week we look to trade a range of 1.2550 / 1.2750 with a low close on Friday. 4-H USDJPY: It has re-test the 114.60 level this morning, strong resistance here and higher at 115.10/30 is still expected to top markets for now. A correction of the last weeks rise from 111.55 could see us fall back as low as 112.75, the medium-term rising trend, strong support at 113.85 and 113.40 on the way lower. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2685 S 1.8610 K 115.30 K 1.2470 K 1.2640 M 1.8530 S 115.00 S 1.2430 S 1.25950 T 1.8460 T 114.65 S 1.2365 M 1.2580 1.8410 114.55 1.2345 1.2555 M 1.8395 M 114.25 M 1.2325 M 1.2520 S 1.8350 K 113.85 S 1.2260 K 1.2470 K 1.8280 S 112.75 T 1.2240 S S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot