Forex Market Commentary for June 2, 2008 by Cornelius Luca

GFT Daily Market Commentary

The dollar has a down day on Friday versus the European currencies, but only consolidated against the independent yen.  I don’t expect the start of a new direction on the first day of June, so consolidation should prevail. 

Euro/dollar

Euro/dollar held above the support of the 60-day moving average at 1.5518 and rallied on Friday.  The upmove failed to trigger a bullish reversal, so consolidation should rule today.
 
Immediate support now comes at 1.5495 and 1.5460. below 1.5415, distant support is seen at 1.5287 from a pivot low. Again, it’s unlikley to dip that low.
 
The resistance at 1.5570 may hold on the day. If it doesn’t, then look for a rally to as high as 1.5650. Distant resistance is perched at 1.5817.
 
Oscillators are mixed.

NEAR-TERM: Mixed    
MEDIUM-TERM: Mixed to slightly bullish
LONG-TERM: Bullish

Dollar/yen

Dollar/yen incurred choppy trading around the poivot at 105.60 but closed virtually unchanged. Expect more consolidation here.
 
Initial support is pegged at 105.18. Below 104.60 there is distant support at 103.60.  Don’t expect to see it though.
 
Immediate resistance is at 105.60 from a 50-point pivot that targets 105.10 and 106.10. The next resistance remains at 106.30. A further spike up to 106.85 is unlikley today.
 
Oscillators are rising.

NEAR-TERM: Mixed 
MEDIUM-TERM: Bullish
LONG-TERM: Bearish

Sterling/dollar

 
By Friday, sterling/dollar has been alternating up and down days for seven days.  If this silly pattern continues, then Monday should be a down day. 
 
Support is first seen at 1.9770. Below 1.9685, cable retains support at 1.9615.

Initial resistance is at 1.9850.  Above it, there is further resistance at 1.9880, 1.9910 and 1.9935. Distant resistance follows at 2.0005.
 
Oscillators are mixed.

NEAR-TERM: Mixed
MEDIUM-TERM: Bearish
LONG-TERM: Mixed

Dollar/Swiss franc

Dollar/Swiss fell on Friday after three consecutive days of gains after failing to surpass the 100-day moving average.  Monday should see only consolidation.
 
Immediate support is seen at 1.0395. Below 1.0375 there is support at 1.0310. Distant support follows at 1.0215.
 
Initial resistance is pegged at 1.0460.  A break above 1.0533 would signal a spike up to 1.0622, but this unlikely today.

Oscillators are mixed.

 
NEAR-TERM: Mixed 
MEDIUM-TERM: Slightly bullish
LONG-TERM: Bearish

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Directional Dollar trading expected to extend into this week

> Releases from Europe:

>April                                                   Forecast    Actual 
Italian Producer Prices              (MoM)    +0.7%     +0.4%
Italian Producer Prices               (YoY)    +6.5%     +6.3%
Euro-zone Unemployment Rate                7.1%       7.1%

>May
Euro-zone CPI (est)                   (YoY)    +3.5%    +3.6%
Italian CPI                               (MoM)    +0.3%    +0.5%
Italian CPI                                (YoY)    +3.3%    +3.6%
Swiss KOF Leading Indicator                      1.09       1.09

>Releases from the States:

>April                                                    Forecast    Actual
Personal Income                       (MoM)    +0.2%    +0.2%
Personal Spending                     (MoM)    +0.2%    +0.2%
Core PCE                                  (MoM)    +0.1%    +0.1%
Core PCE                                   (YoY)    +2.1%    +2.1%

>May
Chicago Purchasing Manager                      48.8       49.1
University of Michigan Confidence               59.5       59.8

>Friday’s European data was mixed, the dreadfully poor German retail sales figure the stand-out provider of confusion following last week’s buoyant retail PMI. All cost and inflation numbers are still pointing higher with little respite from the uptrend in both oil and food prices.

>Nor is there any compromise from European officials with Trichet now voicing vigilance in ensuring there is no wage/price spiral and saying that food and energy price increases don’t feed through to other goods.

>Weber enforced Trichet’s comments that the oil price shock is no reason to abandon the ECB price goal. However, he was correct in his comments, “These surges represent the latest, and arguably the most worrying disturbance in a series of substantial upside price shocks the Euro-system has faced over the past decade.”

>Nice comments but in this situation interest rate hikes are a blunt tool and frankly he has no control over any of those factors…

>Numbers from the States were modestly positive once again, the Chicago PMI taking a further step back towards the 50 boom/bust equilibrium and the University of Michigan Confidence index ticking higher a little more as well.

>So as we start a new month the market is faced with unknowns in whether an interest rate is coming from either block and if so then when… As the market so often does it has brought forward the forecast of when the Fed will hike from next year back to around October with now some commentators suggesting that inflationary fears could now bring that date forward. 

>Trichet talks a hawkish stance as do many other ECB members but the interesting twist compared to a year ago is that the U.S. economy is now providing signs of a bottoming process while Europe is seeing a rather erratic slowdown.

>Higher interest rates and slowing growth is not a market favored combination. However, it is further complicated by the fact that European growth, while slowing, is still positive while the States only has the promise of growth.

>Today sees the U.S. manufacturing ISM which is expected to edge very slightly higher. Indeed, recent figures have shown a mild improvement but we could even see a slightly more positive result.

>Europe’s PPI is expected tomorrow and should maintain the upward push in costs while later in the week the German industrial production numbers are expected to be very soft. Friday also sees the U.S. non-farm payrolls which on the basis of a rising trend in continuing claims is unlikely to provide a pretty result.

>With the market resorting to reacting to each and every number the prospect is for a choppy and volatile week for the Dollar but by Friday should be heading back lower, still within range. Indeed, this lack of conviction in the Dollar’s direction does look set to continue for another 1-2 weeks.

>More later once the daily analysis has been done…

>The following releases are due from Asia due today:

>Australia
April HIA New Home Sales         (MoM)
April Retail Sales                      (MoM)    +0.2%
May AiG Performance of Manufacturing
May TD Securities Inflation        (MoM)
May TD Securities Inflation         (YoY)

>Japan
April Labor Cash Earnings           (YoY)    +1.3%
May Vehicle Sales                      (YoY)

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f you read the newswires and watch the price action you would think the US Dollar is on the road to oblivion but the fact is its not and is due to rally strongly and there are solid reasons for it doing so and this presents a huge low risk high reward profit opportunity.

For me a bit of news I read the other day made me smile and think of getting ready to buy the dollar.

Gisele Bundchen wants to remain the world’s richest model and is insisting that she be paid in almost any currency but the U.S. dollar!

This was considered to be worthy of front page on many newswires and personally I think it just shows how everyone wants to knock the dollar and the media are grabbing any dollar bearish story they can.

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