Dollar remains on the backfoot and hoping for a fresh lease of life from the… … Payrolls outcome. With technical factors against it and momentum shifting away from it, a robust outcome of at least 200 K jobs is the minimum dollar bulls would be hoping for. Key indicators do point towards a blockbuster outcome but the damage to the sentiment around the Greenback might have already been done. Thinking ahead also weighing against the Dollar is the prospect of ballooning in deficit in next week’s release now that the confidence of American consumers has increased which in turn translates to their appetite for imports.

· Euro remains well supported briefly inching back above 1.24 before the usual position squaring ahead of U.S. Payrolls has led to it stabilize within the 1.23 region. Data, continued on its recent strong path with German Factory orders coming in higher than expectations and the heartening factor from the result was the healthy rise in domestic demand which has been the main bone of contention in recent times. Meanwhile the ECB in line with expectations kept rates on hold yet again ignoring pleas from politicians and corporations alike. Inflationary concerns as well as the recent improvement in economic conditions give credence to their on hold stance.

· Yen has given back some of its gains against the Dollar while widely slipping on its crosses as political concerns persists. With Prime Minister Koizumi facing opposition within his own party on Postal Privatization bill which is sending out wrong signals to foreign investors who have recently started to renew their appetite for Japanese assets. Koizumi is of course reform friendly and his calling fresh elections have huge ramifications for the Yen. Given that U.S. Payrolls are the main focus, the Yen could experience volatile moves today.

· Pound remained firm as the rate cut news was digested with ease and this negative having been priced in steadily over the last few weeks. The market, concentrating on the positive side of this action, is hoping that this leads to a welcome boost for both business and consumer confidence while the support for the Pound is also derived from the assertion that rates might stay on hold for the rest of the year, but this might not necessarily be the case. The extent of slowness in the economy coupled with the prospect of a weakening Dollar helping the Pound by default thus stiffening exports, could lead to further cuts while at the same time reducing its yield advantage over the Greenback.

· Aussie is hovering around 0.77 and like other majors is awaiting the U.S. Payrolls outcome. The sharp rally by commodities continues to lend solid support as does the assertion that RBA would remain on hold at 5.5% for the rest of the year. With their report awaited expectations are for a hawkish tone and the assertion that the next move could be on the way up than down.

Economic Data Released

GMT Release Region Previous Actual Comment
11:00 BoE Interest Rate Announcement U.K. 4.75% 4.50% In line with expectations, rates were cut.
11:45 ECB Interest Rate Announcement Euro-Zone 2.00% 2.00% Rates kept on hold with rise in inflation seen.

Upcoming Economic Releases
GMT Release Region Previous Forecast Comment
05:00 June Household Spending Japan 0.8% 0.5% In spite of improved conditions, household reluctant in spending.
10:00 June OECD Leading Indicators. Euro-Zone 104.8 105.1 Recent improvement in conditions should reflect on indicators
08:30 June Industrial Production U.K. 0.1% 0.0% Economy still in sluggish mode with production to decline.
12:30 July Non Farm Payrolls USA 146K 200K Labour market remains robust and an outcome around 200 K is seen

Technical Analysis

EUR/USD – Yesterday’s low was 1.2299 and high was 1.2401.
The pair closed at 1.2385.
The pair is not looking back and remains well supported now that the bids around 1.23 have been decisively broken. A major barrier for this pair lies within the 1.2450-1.25 region with last year the pair locked within the 1.20-1.25 range for more than 6 months. Mild offers and resistance lies in the 1.2410-25 zone followed by resistance in the aforementioned level. The pair is at a crucial juncture especially for the Dollar with a clear break into the 1.25 region to compound the Dollar’s problems. Payrolls are likely to direct the movements with immediate support for the Euro seen in the 1.2250-75 zone. A blockbuster payrolls outcome could limit the pairs losses around 1.2150.
Key resistance is seen at 1.2440 followed by 1.2525 while support starts at 1.2270 followed by 1.2150.

USD/JPY – Yesterday’s low was 110.74 and high was 111.62.
The pair closed at 111.24.
The pair continued to follow other majors but is beset with its own problems which is leading to losses on its crosses and making gains stiffened on the main pair. Dollar bids continue to persist within the 110.70-85 zone for now but a break below risks acceleration of its losses. On the upside resistance continues around the 112 region but key events in the form of Japanese postal bill as well U.S. payrolls outcome will drive the pair and conflicting volatile moves are likely. A decisive break below the support region finds distant strong support around 109.80 which should cap any gains for the Yen.
Key Resistance is seen at 111.95 followed by 112.55 while support starts at 110.70 followed by 109.80.

GBP/USD – Yesterday’s low was 1.7711 and high was 1.7825.
The pair closed at 1.7803.
The pair’s strong resilience continues with buyers coming up on dips below 1.77 and has withstood the rate cut position adjustments stabilizing around 1.78 for now. Immediate resistance is seen around 1.7845-60 zone but the region has mixed technical interest around it with stronger resistance in the 1.7925-40 zone which should cap any gains for today. A break below 1.77 brings stronger support around 1.7650 with Payrolls outcome eyed. In case of a robust outcome the pairs losses could be capped at 1.7555 which is a pivot mark and only a break below this mark raises hopes of a Dollar comeback in the near term.
Key Resistance is seen at 1.7845 followed by 1.7925 while support starts at 1.7690 followed by 1.7645.

AUD/USD – Yesterday’s low was 0.7691 and high was 0.7739.
The pair closed at 0.7710.
The Aussies remains well supported for now having stabilized around 0.77. Key pivot mark of 0.77 was broken above but upside should be difficult unless dollar is crashing no holds bar. Immediate resistance is seen in the 0.7740-55 zone with a decisive break above could bring more acceleration of gains. On the downside, mild support is seen around 0.7655 with a break below to lead decent bottom picking bid interest around 0.76. Decent sized selling orders persists within the 0.77 region.

Key Resistance is seen at 0.7745 followed by 0.7805 while support starts at 0.7655 followed by 0.7610

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