Dollar-Europe to head lower today
European numbers started the day with wholesale prices in Germany quite benign at +0.1% MoM and +1.9% YoY and below forecasts of +0.3% and +2.4% which will be welcomed by the ECB as maintaining a low inflationary profile. It will hardly changed their mind about the fact that the monetary policy is still accommodative but does bring the tightening cycle a notch closer – but not close enough to make any immediate impact.

This was followed by French Industrial Production for May which continued to under perform with a +0.4% MoM which was below forecasts of +0.7%. The figures will disappoint and no doubt have President Sarkozy knocking at ECB Governor Trichet’s door demanding that the central bank gives up its control of monetary policy. However, while moderating the French economy is still expanding albeit at a slower pace and the numbers will be enough to keep the prospect of another rate hike from the ECB alive.

An interesting comment has been issued by the Japanese government’s spokesperson Shiozaki who stated that the government wants the BOJ’s policies to match that of the government... but of course the monetary policy decisions are to be taken by the central bank. It seems a poor attempt to influence the BOJ by suggesting that the CB must take their own decisions – but only as long as it agrees with the government. I’m a bit lost there… No one is anticipating that the BOJ are going to hike rates this week anyway. Statements like these will not impact the currency at this point and while the Yen has strengthened again today it still hasn’t penetrated the 122.97 support.

The following economic releases are due today:

May
Italian Industrial Production (MoM) +1.1%
Italian Industrial Production (YoY) +0.6%
U.K. Visible Trade Balance GBP -6.6bn
U.K. Trade Balance Non-EU GBP -3.95bn
U.K. Total Trade Balance GBP -4.0bn
U.S. Wholesale Inventories +0.4%

June
German WPI (MoM) +0.3%
German WPI (YoY) +2.1%

The Dollar has been pushed higher against the Europeans in late Asian trading weighed down by the sales seen yesterday on the crosses. However, with Dollar-Yen also rallying we are seeing some upward pressure re-emerge in Euro-Yen and this may well trigger some profit taking to push this higher.

Figures due out this morning from Europe has seen a disappointing French IP with the Italian number due later. Never-the-less the Euro has bounced quite firmly against the Dollar and this should lead to further gains over the day. The underlying Dollar trend remains lower still for another 2-3 weeks and even if the Dollar manages to recover there is a good barrier at 1.3515 Euro and 1.2237 Swissie. More likely Dollar losses will resume directly and if so the move could be quite rapid reaching 1.3760 and 1.3827 Euro and 1.2066 and 1.2000 Swissie.

Equally, Dollar-Yen has recovered from key support and this is expected to resume its upward trend with break above 123.50-65 triggering gains to 124.39.

Note important support and resistance areas:

USDJPY EURUSD USDCHF GBPUSD
Res: 124.13-39 1.3740-60 1.2237-70 2.0230-52
Res: 123.49-65 1.3640-58 1.2178-13 2.0169-80

Spt: 122.97-00 1.3594-00 1.2140-44 2.0096-33
Spt: 122.45-69 1.3513-48 1.2089-93 2.0000-15