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European and US summary

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USD Slumps, Oil at Record Highs

Tue, May 20 2008, 22:07 GMT
by Korman Tam

Forexnews.com

5/20/2008 3:00 PM: EUR/$..1.5664 $/JPY..103.70 GBP/$..1.9676 $/CHF..1.0365 AUD/$..0.9581 $/CAD..0.9917

USD Slumps, Oil at Record Highs

The dollar struggled against the majors in the Tuesday session on a combination of soaring oil prices, higher inflation data and sentiment that the ECB will stick to its hawkish bias while US rates remain low. The monthly PPI reading in April increased by 0.2% versus a 1.1% increase in March, while the core readings jumped up to 0.4% m/m from 0.2% in March and up to 3.0% from 2.7% a year earlier.

 
Euro Rallies on Inflation

The euro climbed to a near one-month high against the greenback at 1.5679 following an unexpected surge in Germany¡¯s producer prices. Germany¡¯s April PPI jumped to 1.1%, defying expectations for a decline to 0.5% versus 0.7% from the previous month while spiking to 5.2% compared with calls for a slight increase to 4.6% from 4.2% a year earlier. The stronger than forecast inflation data raises speculation that the ECB will likely maintain its hawkish bias and keep rates unchanged ¨C thereby holding its interest rate differential over the US.

The inflation report overshadowed a disappointing Germany May ZEW survey, with the economic sentiment deteriorating to minus 41.7, worst than the expected reading of minus 37.5 from minus 40.7 in April. Traders will look ahead to the May Ifo sentiment survey, with the current conditions component expected to ease to 108.0 from 108.4 while the business climate survey is seen declining to 102.0 from 102.4.

EURUSD will encounter resistance at 1.5680, followed by 1.57 and 1.5730. Additional ceilings will emerge at 1.5760, backed by 1.58 and 1.5830. On the downside, support starts at 1.5630, backed by 1.56 and 1.5550. Subsequent floors are seen at 1.5520, followed by 1.55 and 1.5475.

BoJ Unchanged, JPY Edges Higher

The Bank of Japan, as expected, left interest rates unchanged at 0.5% when it announced its decision overnight. BoJ Governor Shirakawa offered a somber assessment of the economy, saying ¡°signs of an economic slowdown are becoming apparent¡±. Further, in the Bank¡¯s monthly report, it said ¡°Japan¡¯s economy is expected to grow at a slower pace for the time being and follow a moderate growth plan thereafter¡±.

The yen edged higher despite the downbeat assessment of the economy from the BoJ with the Japanese currency benefiting from higher oil prices and losses in the US equity bourses.

Published on  Tue, May 20 2008, 22:09 GMT