8:30 am U.S. Weekly Jobless Claims (exp: 315K, prev: 313K) 8:30 am ECB Press Conference10:00 am U.S. June ISM Services (exp: 59.0, prev: 60.1) 10:00 am CAN June Ivey PMI (exp: 65.0, prev: 75.0)
Foreign exchange markets await today's European Central Bank press conference after the bank left its benchmark refinance rate unchanged at 2.75%. Focus shall center on the extent to which ECB president JC Trichet hints at future tightening. His rhetoric should help determine probabilities of whether the central bank will raise rates next month, and more specifically, whether Trichet will use the term "vigilant" in describing the bank's anti-inflationary stance (see more below).
Dollar strength remains the order of the day as the impact of yesterday's ADP report revealed a sharp 368,000 surge private payrolls for June, more than triple the prior reading of 122,000. Although the ADP report has now lifted consensus forecast for Friday's non-farm payroll release to 155,000 from 160,000, many private forecasters are penciling in an increase of 220,000 to 250,000.
Considering that June non-farm payrolls are slated to show an excessively strong figure as a payback to May's excessively weak figure, and with the ADP number surprising to the upside, we deem the risk for the dollar to have become slanted mainly to the downside as there stands greater room for disappointment than for upside surprise after the release.
The ISM services survey is expected to drop below 60 for the first time since January, but just as crucial is the prices paid index, which registered an eight-month high of 77.5. A figure below 59 in the headline figure, coupled with a prices paid index below 70 could trigger downside pressure on the dollar.
Euro seeks Trichet's vigilance With the Bank leaving rates unchanged as expected, markets turn to the ECB conference at 8:30 am NYT. Recall that the euro fell to a one-month low in last month's press conference when the ECB raised rates by 25 basis points but did not communicate the anti-inflationary urgency that would normally have signaled a tightening in the subsequent meeting. Similarly, statements from ECB officials over the past four weeks urged on further interest rate increases but reflected no urgency for the bank to depart from its pattern of raising rates a quarter point at end of each calendar quarter.
The continued improvement in euro zone PMI figures, with the manufacturing PMI at six-year highs and the services pushing further reflect the improvement in sentiment, while near record high oil prices should support the inflation argument.
The dollar side of the EUR/USD coin will largely depend on the June release of the U.S. payrolls report, which FX traders are ready to consider dollar-negative in the event of a sub-150,000 figure in payrolls.
Hovering near the session highs of 1.2740s, EUR/USD technicals suggest a bounce back towards the 1.2755-60 interim resistance, followed by 1.2790. Support holding firm at 1.2720.
Yen remains pressured by N. KoreaYen remains pressured by uncertainty surrounding North Korea's missile tests. Vowing to launch further missiles if pressured by the international community, Pyongyang has obtained the sympathy of China and Russia, and neither will support a United Nations backed plan to impose punitive damages on Pyongyang.
Despite rising expectations that the Bank of Japan (BoJ) will raise its benchmark interest rates next week, Vice Finance Minister Hosokawa said in a conference today he wants the BoJ to keep its zero-interest-rate policy for the time being to assure winning the fight against deflation and achieve a sustainable recovery.
But BoJ Governor Fukui said today the conditions that led to persistent excess supply have faded. Informed sources have told the Kyodo News Agency that the Bank of Japan will end its zero rate policy on its unsecured overnight call rate at its July 13-14 policy meeting, raising it to 0.25%, while lifting the official target for the discount rate to 0.30% to 0.45% from its current 0.15%. More than 40% of 178 market professionals in Japan expect the Bank of Japan to lift interest rates in its July 13-14 meeting. USD/JPY tests support at 115.40, a break of which seen encountering foundation at 114.90. Upside capped at 115.75. Key resistance stands at the 200-day moving average of 116.10.
Sterling pressured by home price decline The Bank of England kept rates unchanged at 4.50% as widely expected. Talk of rate hike is resurfacing as the two of nine experts on the Times Shadow MPC support an immediate rate hike, with most of the remaining panel members currently leaning towards an increase later in the year. The BoE's MPC remains with seven members, after the death of David Walton and the still to be replaced Charles Bean.
The Halifax U.K. house price index fell unexpectedly by 1.2% in the month ending in June, but rose 9.4% on the year. It was the first decline since January, and the largest monthly decline since December 2002. Last week, the nation-wide house price inflation showed a paltry 0.3% gain in June.
We do not foresee any significant pullback below 1.8290 for today. Upside could be helped by services ISM and hawkish ECB conference, with initial resistance acting at 1.8380. Key resistance stands at 1.8420.
