Forex - US housing starts plunged to their lowest in 17 years

Forex News and Events: The Dollar fell against the Euro on Tuesday as US housing starts plunged to their lowest level in more than 17 years in May, casting more doubt over an anticipated early Federal Reserve interest rate increase. But losses were limited, with traders also paring expectations of tighter monetary policy in the euro zone after ECB Executive Board member Lorenzo Bini Smaghi said a 25bp hike should bring inflation below its target. Housing starts set an annual pace of 975k units in May, the lowest since March 1991. US industrial production slipped unexpectedly in May and a surprise widening in the Q1 current account deficit. Germany's ZEW index of economic sentiment for June came in sharply below forecasts, pushing down euro zone yields and implied rates. EurUsd rose up to 1.5551 and last traded up 0.34% at 1.5517. UsdJpy fell 0.29% to 107.91. UsdChf went down 0.34% to 1.0412. GbpUsd dropped as low as 1.9470 and was last -0.28% at 1.9574. Short-term interest rate futures showed around a 55% of 25bp interest rate increase in August, down from 90% late on Monday. Speculation of an early policy tightening from the US central bank ignited a Dollar rally last week as this would restore some of the greenback's allure to investors seeking higher returns. Analysts remain convinced that the Fed will raise interest rates by year-end, citing an unexpected 1.4% rise in the headline producer price index in May, which pointed to growing inflation pressures already highlighted by the central bank. Euro zone interest rate expectations were also trimmed after the European Central Bank's Smaghi indicated a single hike would be sufficient to bring back inflation below the bank's 2% target.

Today's Key Issues (time in GMT): 08:30 GBP Bank of England Minutes of June MPC meetings. 09:00 CHF June ZEW investor sentiment previous -60.4 10:00 GBP June CBI trends – orders -12 vs -10 12:30 CAD May Lead indicators 0.1% vs 0.1% 18:30 GBP Chancellor Darling’s annual Mansion House speech

The Risk Today: EurUsd Euro dropped 2.52% last week. Further weakness below 1.5400 will put the light 1 ½-month uptrend on hold. This may open way down to 1.5000 key level. Support holds 1.5304 Friday low. On the upside, initial resistance holds 1.5844 Friday high. This would reopen the way up to 1.6000 Pivot point resistance ahead of key resistance 1.6200 market target. GbpUsd Cable is turning over the upper Trendline resistance of two-month downtrend 2.0398 – 1.9364 late May, searching for direction. Trading range is set 1.9400 – 1.9850. Psychological 2.0000 level stays into focus. On the downside, current reversal below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Strong support holds 1.9363 20th February and 14th May low. UsdJpy Current uptrend hit 108.59 high and new 3-month high on Monday. This would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high. Any profit taking to and return lower than 105 level might send the market back down to 100 – 104 consolidation trading range. Minor support holds 102.58 May 9th low. Initial support holds 104.44 Monday low. Strong support hold 106.59 former resistance (38.2% retracement of 124.15 – 95.74 decline. UsdChf Market is back again in 1.0400-1.0600 trading range. Early January double top 1.1191 marks strong resistance. Initial support holds 1.0148 Monday low. Further weakness may open the way toward 0.9639 17th March low. Friday 1.0541 high holds initial resistance. Minor support holds 103.80 Monday low.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.6200 T 2.0100 P 111.92 K 1.1191 K 1.6000 K 1.9800 S 110.10 T 1.0625 T 1.5844 M 1.9688 M 108.39 M 1.0541 M 1.5510 1.9670 107.75 1.0400 1.5304 M 1.9363 S 106.59 S 1.0380 M 1.5285 S 1.9337 T 104.44 M 1.0000 P 1.5000 K 1.9105 K 100.00 P 0.9637 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot