Forex News Week 49-2

Dollar May Down Further on Tuesday Data by Yan Xu  06/12/05

The dollar stays weak against its rivals on Monday. The euro remained above 1.33 against the dollar and the yen strengthened to below 115.50 versus the dollar.

Market sentiment is very bearish on the dollar on the concern of cooling U.S. economy and a Fed rate cut. Interest rate futures pricing indicates traders see a 100% odds that the Fed will cut interest rates to 5% in its March 2007 policy meeting. The Federal Reserve Bank of Chicago President Moskow said today on CNBC.com that he expects U.S. economic growth to be below trend and inflation to be contained.

In contrast, the European Central Bank is widely expected raise its benchmark rates from 3.25% to 3.5% on the policy meeting this Thursday. The market will focus on the ECB Chairman Trichet's speech after the meeting to look for signals for further tightening in next year.

The dollar may fall further if several U.S. economic data due tomorrow morning come out as weak as expected. The unit labor costs are forecasted to lower from 3.8% to 3.5% in the third quarter. Factory orders are estimated to fall 3.8% in October, down from the 2.1% reading in September.

The Bank of Canada is expected to announce that it will keep its interest rate unchanged at 4.25% on Tuesday morning.

EURUSD will face interim resistance at 1.3350 followed by 1.3370 and 1.34. Additional ceilings will emerge at 1.3450, backed by 1.35. Support starts at 1.33, backed by 1.3280, 1.3230 and 1.32. Subsequent floors are eyed at 1.3150.

USDJPY encounters interim resistance at 115.50, backed by 116 and 116.30. Subsequent ceilings will emerge at 116.50, followed by 117. On the downside, support begins at 115.20 and 115, followed by 114.70. Additional floors are eyed at 114.50, backed by and 114.