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Dollar Rallies On Long Liquidation/Tensions

Economic data was in favor for a dollar charge on the session as both Empire manufacturing data and industrial production figures relatively matched consensus estimates.  However, propelling the move higher was a combination of continued violence in the middle east and stop loss triggers.  With violence and subsequent tension escalating in the Middle Eastern region, traders continued to pile in on dollar long positions even as the week continues to offer plenty of dollar denominated event risk.  The demand for greenback longs eventually triggered short positioning stops on the way up in the pair, exacerbating the move to test the 1.2493 daily high.  Consolidating into the Asian session, volume looks to be light ahead of the inflationary data over the next two days and the anticipated two day testimony to Congress by Federal Reserve Chairman Ben Bernanke.  Expected to cite some incremental softness in the worlds largest economy, the upcoming testimony may very well spark dollar weakness as futures continue to price in a smaller likelihood of a follow up hike in benchmark rates.  The comments may further dollar weakness as net foreign purchases of domestic securities is expected lower than consensus.

Rumormill

With event risk approaching with the weeks full slate of data, the 1.2500 figure is expected to offer plenty of offers to the downside.  The barrier should keep longs at bay, sparking some medium term profit taking as the orders are emerging in size.  The figure coincides with two previous tests on the 240-minutes chart, purporting a retest of support at the 1.2331 figure, the 38.2 percent fib from the June bull wave.  Comparatively, a break above would coincide with momentum players higher.

NZDJPY

Kiwi Fortunes Rise On Higher Inflation

The kiwi got a helping hand Monday, topping out as one of the three market movers on the session.  Bolstering a 1.1 percent move on the day was the months consumer price index report.  According to the mornings report, consumer inflation increased to 16-year highs of 4 percent on the annualized comparison.  The figure is now well above the 2-3 percent benchmark set by the Reserve Bank of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New Zealand, sparking some speculation of a rate hike.  Although minimal is the momentum behind this sentiment, truth be told that the central bank is more than likely to keep benchmark rates at the record highs.  The notion has apparently kept with traders following rather dovish rhetoric issued by the Bank of Japan after raising rates for the first time in six years last week.  Further worsening the yen drop looks to be a likelihood of further investment abroad by Japanese investors as the comments continue to reflect a shaky economic outlook.  As a result, with uridashis a central investment vehicle, the continued demand for higher rates of return are likely to buoy the cross pair into the overnight.

Rumormill

Continued bidding on the Kiwi major is likely to keep the New Zealand dollar leg supported in the Asian and overnight sessions.  Bids are currently riding slightly below market at 0.6180.  However, the cross continues to approach a heavy resistance ceiling at the 0.7300 figure, 38.2 percent Fibonacci from the Feb 06-May 06 bear wave.  Should the figure prove weaker than expected, bulls are likely to make an easy run higher to 74.69 in the intermediate term.

GBPUSD

Traders Ditch Housing Data

Leading pairs to the downside, the sterling was pummeled on the session, rounding out the top three market movers on the day.  Holding steady in the overnight, the major price action broke through support to the downside despite better than expected housing reports in the United Kingdom.  According to Rightmove, UK housing prices rose once again, by 2.9 percent on the month and a whole 10.6 percent on the annualized comparison.  The report should have bolstered a move higher in the pound, but instead reflected the resiliency of greenback data and effects of Middle East tensions.  Consolidating in similar fashion to most major pairs on the day, the sterling may get some reprieve as RICS data is scheduled to move higher later this evening.  More data is expected to be issued on the side of the sterling with retail sales data and gross domestic product figures expected at the end of the week.  But, although data runs plenty, event risk still looks dependant on the anticipated Humphrey Hawkins on Wednesday.

Rumormill

Massive profit taking is rumored and may very well trigger orders as momentum players take the pair higher.  Demand is tipped at 1.8175 and lower with considerations reaching as low as 1.8090, the June 29^th low.  Should bids remain soft in the overnight, look for sellers to emerge with offers to cap any immediate gains at 1.8225 and 1.8250.