Daily Report: Dollar Retreats Mildly as Markets Consolidate, ISM Services Watched

Dollar retreats mildly today as markets consolidate last week's gains. Focus turns to ISM non-manufacturing index. The services composite index dived below 50 expansion/contraction level in Jan and reached a low of 44.6 there. Even though the index did recovered in the following months, it's still being kept below 50. The same is expected in Apr as the index is expected to drop slightly from 49.6 to 49.5. Nevertheless, note that sentiments on the greenback has changed recently and the dollar is more sensitive to positive news than negative news. While any upside surprise today will likely trigger another round of dollar buying, markets may perceive no news as good news and give the dollar a boost if the data is close to expectation.

Elsewhere, note that high yields are relatively still firm against dollar greenback. Aussie is lifted by strong house price inflation data released overnight that climbed 3.1% qoq, 13.8% yoy, up from prior 3.2% qoq, 12.3% yoy. After all, while Aussie may consolidate further, short term outlook is still bullish. On the other hand, Sterling recovers mildly in established range and with 1.9599 low still holds, the short term outlook remain bullish. Swissy and Euro, and to a lesser extent the yen, will remain the weaker currencies.

USD/JPY Daily Outlook

Daily Pivots: (S1) 104.58; (P) 105.14; (R1) 105.95; More.

USD/JPY retreats mildly after rebound from 95.77 extended further to as high as 105.70. At this point, intraday bias remains on the upside as long as 104.54 minor support holds. While, USD/JPY is always in mentioned resistance zone of 104.96/108.59, further rally is still expected to 38.2% retracement of 124.13 to 95.77 at 106.60. But resistance should build up significantly as USD/JPY is approaching 108.59 medium term resistance. On the downside, below 104.54 will turn intraday outlook neutral first. But still, further rally is in favor as long as retreat is contained above 103.16 support.

In the bigger picture, sustained trading above 55 days EMA (now at 103.52) indicates that a medium term bottom is in place after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Focus is now on 108.59 resistance and break of which will break a series of lower highs, lower lows pattern that started at 124.13 and will confirm that this down trend has completed already. In such case, stronger medium term rebound should then be seen to retest 114.77 resistance first. However, failure below 108.59, followed by break of 100.02 support will firstly indicate rebound from 95.77 has completed. Secondly, it will keep the lower higher, lower lows pattern intact and suggest that down trend from 124.13 is still in force.

Forex News Digest

• Euro Advances on Speculation ECB to Keep Interest Rates at Six-Year High
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• Greenspan Says U.S. Is in a `Pale Recession' That May Extend Through Year
• Brown Will Focus on Economy to Win Back U.K. Voters After Election Setback
• Europe's Price Surge Persuades Politicians to Back ECB on Interest Rates
• The Week Ahead Japan & Australia: RBA Interest Rate Decision, Aussie Employment
• The Week Ahead Europe & UK: BOE and ECB Interest Rate Decisions
• The Week Ahead Canada & U.S.: Cdn Employment, Housing Starts, U.S. ISM Services

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