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European and US summary

Dollar Recovers on Bailout Plan

Mon, Jul 14 2008, 23:23 GMT
by Korman Tam

Forexnews.com

7/14/2008 3:00 PM: EUR/$..1.5917 $/JPY..106.10 GBP/$..1.9940 $/CHF..1.0156 AUD/$..0.9720 $/CAD..1.0052

Dollar Recovers on Bailout Plan

The greenback recovered slightly against the majors, pushing the euro back toward the 1.59-level after dropping to 1.5970 earlier in the session. Amid a dearth of US economic reports, markets digested the government’s plan to rescue Fannie Mae and Freddie Mac, which consists of opening the Fed’s discount window as well as a proposal to purchase their equity. The moves are intended to quell bourgeoning fears over the stability of the financial sector, especially following the failure over the weekend of regional bank IndyMac.

The US economic calendar picks up this week with the releases of several key reports including June retail sales, PPI, business inventories, CPI, TICS, industrial production, housing starts, building permits, and the Philadelphia Fed survey. The data this week are likely to bode poorly for the US economic outlook, with housing continuing to remain weak, inflation creeping higher, and the manufacturing sector softer. The minutes for the Fed’s June meeting, due out on Wednesday, will provide further insight into the deliberations that kept rates unchanged but offered a shift toward a more neutral stance.

 
JPY Consolidates Ahead of BoJ

The yen continued to consolidate against the dollar and sterling ahead of the Bank of Japan’s monetary policy decision and monthly report. Although the BoJ is not expected to change rates when it announces the results of the meeting, the monthly report is likely to offer a downgraded outlook for the economy. Further, we expect a downward revision in the Bank’s growth outlook from the previous forecast of 1.5% in light of deteriorating economic conditions both domestically and globally.

USDJPY trades around the 106-level, with interim support starting at 105.75, followed by 105.40 and 105. Additional floors are seen at 104.70, backed by 104.25 and 104. On the upside, resistance starts at 106.30, followed by 106.60 and 107. Subsequent ceilings are seen at 107.30, followed by 107.80 and 108.

Published on  Mon, Jul 14 2008, 23:23 GMT

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