Market Summary,Dollar slipped after mixed data results which included tame inflation and a lower than...

... estimated Capital Inflow result. The inflows have come below the Trade deficit result for the second consecutive month bringing to the fore concern in relation to the structural deficiencies in the economy. On a positive note NY State Manufacturing index as well as Industrial Production data were solid, thus allaying fears of a slowdown in the manufacturing sector after poor results in the last month. Tepid inflation and solid signs of growth should make the Fed happy; however oil prices are causing concern & continue to inch higher as the market remains unimpressed by OPEC assertion to increase supplies.

· Euro stuck around the 1.21 mark like a magnet due to high yielders benefiting more on tame U.S. inflation figures, strong rebound seen in U.S. Manufacturing highlighted the divergence in growth prospects compared to the Euro-Zone as well as traders not willing to be caught on the wrong foot like the day before with decent sized offers within the 1.2100-45 region. The two-day EU summit starts today with many thorny issues within the zone to be discussed. Among them is the monetary policy, as in spite of many ministers in favour of a rate cut, ECB President Trichet remains firm on his on hold policy.

· Yen remained within the 109 region as it holds mixed technical interest while high oil prices are again posing questions on the economy’s chances to continue on its slow recovery path. Meanwhile, the government upgraded its assessment of the economy thanks to pick up in household spending as it remains confident that the second half would outperform the first. Machine orders are eyed to see the effect high oil prices are having on new orders.

· Pound was the major benefactor of weak U.S. data rallying by around 150 points as it is prone to exaggeratory movements. U.K. Employment data suggested easing in wage pressures while unemployment increased due to the layoffs at Rover as well as recent slow consumer spending translating to companies looking at cost cutting measures. Today’s Retail Sales figures are keenly eyed to gauge consumer spending but it is unlikely to lift from its sluggish state. Decent selling interest exists on any forays above 1.83.


· Aussie once again failed to clear strong offers around 0.77 and for now has stabilized just below it. However it is being strongly supported by higher commodity prices with Gold managing to inch above $430, solid real money demand and decent technical support around 0.7615. But it needs to clear 0.77 decisively other wise it risks broad liquidation while cue is taken from other majors.

Economic Data Released

GMT Release Region Previous Actual Comment
08:30 April Average Earnings U.K. 4.6% 4.6% Wage pressures ease and unemployment jumps up
12:30 May CPI m/m USA 0.5% -0.1% First deceleration since last July due to decline in oil and energy prices.
12:30 June Empire Manufacturing USA -11.1 11.7 Higher than expecting offsetting its sharp fall last month
13:00 April TIC’s data USA $45.7Bn $47.4 Bn Lower than expected with foreign Central Banks purchasing less.
13:15 May Industrial Production USA -0.2% 0.4% Higher than expected as the manufacturing sector picks up.

Upcoming Economic Releases
GMT Release Region Previous Forecast Comment
05:00 April Machine Orders Japan 1.9% -2.0% Orders have remain mixed with domestic demand increasing but exports patchy
08:30 May Retail Sales m/m U.K. 0.55 0.1% Sales expected to inch higher but consumer spending remains patchy
09:00 May CPI m/m Euro-Zone 0.4% 0.3% Easing in oil prices should reduce inflation
16:00 June Philly Fed Index USA 7.3 10.0 Like other regions index should rebound
*Only key potential market moving data is mentioned, for a detailed Economic Calendar please click on the ‘Financial Calendar’ link on the web-site.

Technical Analysis

EUR/USD – Yesterday’s low was 1.2025 and high was 1.2131.
The pair closed at 1.2111.
Weak U.S. data and technical factors against the Euro led to another patchy trading day as the Euro hovers around the 1.21 mark and the pair is failing to break below 1.20. Good support and buying orders exists for this pair in the 1.1990-1.2010 zone with a break below likely to accelerate Euro’s losses into the 1.18 territory. On the upside mild resistance exists around 1.2145 followed by very strong resistance and offers on any break above 1.22. EU summit news is eyed for further direction on the pair.
Key resistance is seen at 1.2145 followed by 1.2215 while support starts at 1.2055 followed by 1.1995.

USD/JPY –Yesterday’s low was 109.13 and high was 109.70.
The pair closed at 109.17.
109 region holds mixed technical interest for this pair as it remains locked within that region. The Yen risks losses if it can’t break decisively below 108.85 which holds mild support followed by very strong support around the 108.25 mark. On the upside resistance is very strong around 109.75 but a clear break above could accelerate losses for the Yen.

Key Resistance is seen at 109.75 followed by 110.25 while support starts at 108.85 followed by 108.25.

GBP/USD – Yesterday’s low was 1.8055 and high was 1.8246.
The pair closed at 1.8211.
The pair rallied higher as it is prone to exaggeratory movements more than other majors but gains were halted around the strong resistance zone of 1.8245-60. A break above would bring into focus the 1.83 region with very strong selling orders above that mark. 1.81 region holds mixed technical interest with strong support around 1.8055. Today’s U.K. Retail Sales data will drive the pair.

Key Resistance is seen at 1.8245 followed by 1.8315 while support starts at 1.8125 followed by 1.8055.

AUD/USD – Yesterday’s low was 0.7619 and high was 0.7701.
The pair closed at 0.7689.

Commodity prices have remained firm thus keeping the Aussie supported above 0.76 with mild support around 0.7605 followed by very strong support around 0.7575. 0.77 is the crucial mark with strong offers above it all the way up to 0.7755. Continuous failure to break above it could lead tom profit taking on Aussie longs but cue is taken from other majors.

Key Resistance is seen at 0.7705 followed by 0.7755 while support starts at 0.7625. followed by 0.7575.




Kunal Sharma
Forex Analyst
E-mail: kunal@easy-forex.com
www.easy-forex.com