NEWS / Macroeconomic Stories

Dollar correction started

By Marc Spaelti - ACM Senior Trader Yesterdays News and Events: The Dollar slowly traded lower in a controlled move against the major currencies on Monday. Strong US New Homes Sales of 1.23m units in May did nothing to stop the mood of the day, the Euro continued climbed to reach a high of 1.2620 in Asia, Cable topped 1.8265 and it looks like both pairs have more room to correct today. The Japanese YEN again lagged the rest, so far only a low of 115.85 was briefly reached in Tokyo, EURJPY was the beneficiary as it continues to make new 8-year highs. BOJ Fukui and his personal investments are still in the crossfire of the media and are obscuring the issue of rate hikes for the moment. Small matter, as we seem to have to wait at least another month for the first move. The FED in an annual report said it expects the US economy to perform well in 2006 and 2007, despite inflation pressure in the near-term due to rising energy prices. This won??™t change the expectations for a 25bp rate hike on Thursday. Trichet was quoted that ???the ECB won??™t tie its hands in advance over timing of rate hikes??™ ruling out a FED-like approach of a string of rate hikes in succession. He added that he was permanently alert for any change in inflation risks. Todays Key Issues: German June IFO Business Climate Index is due at 8amGMT. It is forecast to shed 0.3 points to 105.3, but the World Cup hype may see business conditions improve temporarily and we are ready for a positive surprise to help lift the Euro. US May Existing Home Sales are due at 2pmGMT, at 6.76m units in April, they ought to shed about 2% to 6.6m units. US Conference Board Confidence for June is also due at 2pm, it is expected to soften to 103 from 103.2 in May. The Risk Today: EURUSD: Strong initial support 1.2590, while above, look to continue rising towards 1.2670 strong resistance, key 1.2700, a daily close above that is bullish in the medium-term. A fall through 1.2590 should encounter buying interests at 1.2570, 1.2550, 1.2520, key support 1.2500 must hold. Daily GBPUSD: The bearish extension to 1.8140 on Friday saw us trade at the 50% retracement level of the strong April-May surge. In the short-term a correction to 1.8350 is expected, but it could continue to as high as 1.86. Risk to the downside is a breech at 1.8140 to continue to the 62% retracement level at 1.7930. Daily USDJPY: With a high of 116.65 on Friday, the 2-month old gap from April has now been closed. There is also a strong long-term resistance above 117 to keep the market from rising. We continue to look for the Dollar to correct from the current high levels above 116, minimum retracement to 115.50 should be seen, a fall to medium-term bullish trend at 114.65 can be expected. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2740 S 1.8415 M 117.40 K 1.2530 S 1.2700 K 1.8350 K 117.10 M 1.2500 K 1.2670 M 1.8285 M 116.65 S 1.2470 S 1.2600 1.8250 116.20 1.2425 1.2590 M 1.8225 M 115.85 M 1.2365 M 1.2550 S 1.8170 S 115.50 T 1.2310 S 1.2500 K 1.8135 K 114.65 K 1.2260 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot