Today we are seeing signs that the US dollar could still resume its short-term recovery, leaving its so-far bottom behind by rising against the Euro, British pound, Swiss franc and Japanese yen.
The USD sentiment boost came from weak Eurozone data and hawkish comments by Kansas City Fed President Thomas Hoenig. Hoenig, a non-voting member of the FOMC, said yesterday that “serious” inflation problems may lead the Fed to raise interest rates. He said, “There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it.”
Although he doesn’t vote this year, his thoughts on this no doubt reflects that of dissenters like Dallas’s Fisher and Philadelphia’s Plosser, that there is a medium to long-term danger of letting rates go lower in an environment of rising food and energy prices. In fact, the short FOMC statement gave hints that the Fed may pause rate cuts for now, something which is a big support for the US dollar.
Crossing the Atlantic over to Eurozone, there are growing indications of a slowdown, lagging that of the US. Eurozone retail sales data released today showed a drop of 1.6% in March compared to a year ago, the biggest fall since the data collection started in 1995. Sales fell 0.4% from the previous month. Another government report showed that German manufacturing orders fell 5% in the year ended in March, compared with an 8.9% rise the prior month. The ECB is expected to keep its main refinancing rate unchanged at a six-year high of 4% Thursday, so watch out for that.
US Housing Market
According to the NAR, pending sales of previously owned homes fell 1% to 83 in March, not as bad as the 1.8% drop expected. NAR said that better access to affordable loans could aid in a more sustained recovery, and that they “continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half”.
EUR/USD didn’t break above resistance around 1.5600-10, so USD bulls brought the pair down to an intraday low of 1.5380. Actions around 1.5340 must be watched, for if this breaks, downside targets are possibly 1.5280-1.5300, then 1.5230. The European Commission said Wednesday that the “overvalued” Euro is an increasing source of concern.
Yesterday USD/CHF fell to 1.0450, the expected base of support for the pair, and then bounced 140 pips from there to 1.0590. If it breaks successfully above 1.0610, it may aim towards 1.0650, 1.0700-30.
GBP/USD fell more than 200 pips today, breaking below crucial support around 1.9600, out of the triangle and sliding towards 1.9500. UK Nationwide’s index of sentiment fell to the lowest level since the survey began in May 2004.
Swiss unemployment 0545 GMT
Bank of England rate decision 1100 GMT (rate expected to stay at 5%)
ECB rate decision 1145 GMT (rate expected to stay at 4%)
Canada housing starts 1215 GMT
US initial jobless claims 1230 GMT
US wholesale inventories 1400 GMT
Greenspan speaks in New York 1630 GMT