Record Eurozone Inflation Supports The Single Currency
The dollar fell against the euro on Monday, halting a three-session winning streak, as record euro-zone inflation supported expectations of a European Central Bank interest rate hike next month.
Eurozone inflation rose to a record high of 3.7 percent year-on-year in May. The scenario for interest hikes from ECB in July becomes more probable especially after hawkish comments from Governing Council members of the bank who said stabilizing inflation in the medium term was a priority. An ECB interest rate increase would further enhance the appeal of the single currency at the expense of the greenback. That gave reflection in the Monday trading as the euro rose to the levels of $1.5517, rebounding from the one month bottom at $1.5300 reached on Friday.
An additional pressure on the greenback was caused by the $2.8 billion quarterly loss from investment bank Lehman Brothers Inc and an unexpectedly steep contraction in New York state manufacturing. Lehman results were not a surprise but served as a reminder to investors that the credit crisis was still far from over. The New York Fed's "Empire State" general Business conditions index fell to minus 8.68 from minus 3.23 in May, worse than market expectations for a reading of minus 2.00.
TECHNICAL OVERVIEW
EUR/USD
The euro continues its wide range consolidation after the key support level at 1.5300 was tested again unsuccessfully. So far, the upward movement was limited by the resistance at 1.5520, and if broken, next targets are the levels at 1.5580 and 1.5640. On the downside, support is seen at 1.5435, followed by 1.5350 and the key 1.5300. Overcoming of the last could open a potential for a significant correction.
EUR/USD (chart, table)
USD/JPY
The rise of the dollar against the yen was stopped by the key resistance level at 108.50, which was tested unsuccessfully and has a big potential to cause a strong correctional move. A consolidation just below that level in the near term is highly probable. If broken successfully, next targets are the resistance levels at 110.00 and 111.20. On the downside, support is seen at 107.20, followed by 106.50 and 105.60.
USD/JPY (chart, table)
GBP/USD
Trading remains neutral without any clear direction as the pound was pushed up again by the already formed stable mid-term bottom around 1.9400. So far, the upward movement is limited by the resistance level at 1.9685, and if broken next targets are 1.9725 and 1.9790. On the downside, support is seen at 1.9600, followed by 1.9505 and 1.9460.
GBP/USD (chart, table)
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17.06.2008 FX daily review.pdf, 172 Kb
