Dollar fell across the board but once again strong data from its side helped it...

... stabilized and pare back some of its losses. Its decline was the combination of the continuation of solid real money demand for other currencies notably the Euro in favour of the Greenback by Central Banks as well as generally thin market conditions usually seen this time of the year in the Northern Hemisphere summer. Also weighing against the Dollar was oil prices going towards a record high level following the death of Saudi King Fahd while problems experienced in refineries contributed to the spike.


· Euro managed another impressive rally and broke past 1.22 but the familiar resistance zone of 1.2250-1.23 continues to hold well for now with the Euro staying below this region for two months now. Earlier data was positive keeping in line with the steady recovery seen in the zone with Manufacturing sector in expansionary territory with PMI inching back above 50. The Euro also got a boost from Russia’s announcement to increase its Euro holdings at the expense of the Dollar and the 5% increase is likely to be increased further in months to come. With raw material prices increasing & oil prices at such high levels which is eating into global spending power, European exporters would start worrying if the euro launches a fresh uptrend from here.



· Yen gains were stiffened in spite of Dollar’s broad based decline as apart from record high oil prices affecting the world’s second largest importer, the crucial vote in the Japanese Parliament to reform the postal service is causing a fair bit of uncertainty. The reason is Prime Minster Koizumi has been strongly advocating the acceptance of this bill in keeping with his reform policies and a rejection of it would effectively been a vote of no confidence and could lead to him calling early elections. But fundamentals continue to improve with workers average basic pay coming in higher than expected which should hopefully lead to an increase in confidence and translate to healthy consumer spending.


· Pound has been the biggest benefactor of Dollar’s weakness and broke through its recent range rallying by around 200 points and inched above 1.77. This rally came in spite of the Manufacturing PMI suggesting that the beleaguered sector remains in contractionary territory. However with an impressive rebound seen in the U.S. as well as Euro-Zone manufacturing sector, it is hoped that this would soon reflect in the U.K as well as global demand for exports picks up. But the report for the U.K. had inherent weaknesses with employment sub index declining as well, thus any turnaround in the dollar’s favour would see the Pound decline faster than it gained.


· Aussie got a boost from this morning’s data and has broken decisively above 0.76 and remains well supported as Retail sales went to a two year high while the Trade deficit unexpectedly narrowed to a two year low. However there is a paradox in these two results as the increase in Retail sales is largely due to stock clearance sales and is more reflective of past trends while the decline in deficit comes from a sharp drop in imports which is reflection of slowing consumer demand but exports remain healthy on steady demand for commodities.

Economic Data Released

GMT Release Region Previous Actual Comment
01:30 June Labour Cash Earnings y/y Japan 0.4% 1.1% Labour market is improving with rise in earnings seen.
08:00 July PMI Manufacturing Euro-Zone 49.9 50.8 Pick up in exports and domestic demand has lead to a rise.
08:30 July PMI Manufacturing U.K. 49.6 49.2 Unexpectedly declined as domestic demand remains weak.
14:00 July ISM Manufacturing USA 53.8 56.6 Manufacturing sector has seen a strong rebound recently and trend continues.

Upcoming Economic Releases
GMT Release Region Previous Forecast Comment
05:00 July Small Biz Confidence Japan 48.4 48.7 Slight increase seen in confidence but conditions still remain mixed
08:30 July PMI Construction U.K. 55.8 55.0 Housing market remains on the weak side with construction to decline.
12:30 June Personal Spending USA 0.0% 0.8% Spending should rebound strongly as consumer confidence rises.
14:00 June Factory Orders USA 2.9% 1.0% Orders should ease back but still at healthy levels
23:30 RBA Interest Rate Decision Australia 5.5% 5.5% Conditions don’t warrant a hike if on hold likely for rest of the year


Technical Analysis

EUR/USD – Yesterday’s low was 1.2122 and high was 1.2249.
The pair closed at 1.2190.
The pair is now in neutral territory and the momentum as well as the sentiment would shift in the Euro’s favour if it can break decisively past the pivot 1.23 mark. For now strong offers continue from 1.2250 laced up to 1.23 with a break above brings distant resistance around the 1.2410-25 region which should cap any gains for now. On the Downside decent support has moved up to the previous resistance in the 1.2120-35 region. A break below brings the strong support mark of 1.2040 into focus with decent bottom picking bid interest seen around 1.20. A decisive break below this ark could accelerate losses for the Euro and shift the momentum back I the dollars favour.

Key resistance is seen at 1.2275 followed by 1.2345 while support starts at 1.2120 followed by 1.2040.

USD/JPY – Yesterday’s low was 111.71 and high was 112.63.
The pair closed at 112.17.
The Yen has failed to gain as much as other majors with the market waiting for political events to unfold on Friday. For now mild dollar bid interest remains in the 111.45-60 region with a break below to accelerate losses towards the 110.80-95 strong support region, with decent buying interest around it. A decisive break below this region would shift the momentum back in the Yens favour and could lead to the upside for this pair, to be well protected for now. Immediate resistance continues in the 112.75-90 region, while the break above brings into focus the very strong resistance at 113.55 which remains a sell region.
Key Resistance is seen at 112.75 followed by 113.55 while support starts at 111.45 followed by 110.90.

GBP/USD – Yesterday’s low was 1.7551 and high was 1.7731.
The pair closed at 1.7682.
The pair has made an impressive rebound breaking key resistance levels, by going above 1.77 and sentiment has shifted to neutral. However offers persist within this region and only a break above 1.78 would shift the momentum in the Pounds favour. This pair is prone to exaggeratory movements with mild support having moved up to 1.7610-25 region with the break below this region likely to bring into focus the previous strong resistance mark of 1.7555 which now acts as strong support. A clear break below this mark would accelerate losses for the Pound and shift the momentum back in the dollars favour.

Key Resistance is seen at 1.7745 followed by 1.7805 while support starts at 1.7610 followed by 1.7555.

AUD/USD – Yesterday’s low was 0.7552 and high was 0.7635.
The pair closed at 0.7606.
The Aussies is buoyed by strong data and remains well supported to stay above the 0.75 mark and for now has stabilized above 0.76. Strong selling orders persisit above 0.7650 and are lined all the way up to 0.77. Only a decisive break above this mark raises hopes of a fresh uptrend otherwise direction remains a bit mixed. On the Downside mild support has moved up to the 0.7555 mark with a break below to bring into focus strong support region of 0.7475-0.75 which has very strong buying interest for the Aussie.

Key Resistance is seen at 0.7655 followed by 0.7705 while support starts at 0.7545 followed by 0.7475.


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