US session review: Dollar rises vs. yen ahead of Fed decision

Data released (actual, consensus, previous):                   

12:30 GMT USA Building Permits (MoM) (May)  0.974M    0.975M    1.005M    

12:30 GMT USA Housing Starts (MoM) (May)  0.914M    0.950M    0.856M    

12:30 GMT USA Consumer Price Index Ex Food & Energy (YoY) (May) 1.7%    1.7%    1.7%        

12:30 GMT USA Consumer Price Index (MoM) (May)  0.1%    0.2%    -0.4%        

12:30 GMT USA Consumer Price Index (YoY) (May)  1.4%    1.4%    1.1%         

12:30 GMT USA Consumer Price Index Ex Food & Energy (MoM) (May)  0.2%    0.2%    0.1%        

The U.S. dollar rose on Tuesday against the Japanese yen, as the Federal Open Market Committee prepared to kick off its two-day meeting.

Few market participants think the Fed could announce a change in its monthly asset purchases of $85 billion at this meeting, but the language used in the monetary policy statement about an eventual slowing could be important for the dollar.

A Monday afternoon article in the Financial Times said Bernanke was likely to imply the Fed is close to slowing its monthly asset purchases, depending on economic figures.

Data released Tuesday showed inflation remained benign. U.S. consumer prices rose by a seasonally adjusted 0.1% in May, compared with expectations of a 0.2% increase. But construction of new homes in the U.S. rose 6.8% last month to a seasonally adjusted annual rate of 914,000, less than economists had expected.

EURO:

The euro rose to the highest level in about 4 months late Monday.

The ZEW economic-sentiment indicator in Germany rose 2.1 points to a print of 38.5 in June. Economists had expected a reading of 38.1.

EUR/USD has tested $1.3400, but failed to break above. Initial support remains at the channel line from May 29, coming now at $1.3350. Below support is around $1.3280 (Jun 13 lows), $1.3200 and $1.3170 (Jun 10 lows). Above $1.3400 (initial resistance, Jan 14 highs) resistance comes at $1.3480, then - near $1.3540 (channel resistance line from May 29).

POUND:

The pound recovered a part of earlier losses.

GBP/USD off session lows on $1.5560 after it broke the channel support line from May 29 at $1.5730 (resistance now). Break under session lows will widen losses to $1.5500/90 (Jun 7 lows).  Initial resistance comes at daily high on $1.5700, extending to channel line at $1.5730. Next resistances could be found at $1.5765 (Feb 7 high) and $1.5800 (psychological level).

YEN:

The dollar on Monday broke a four-day win streak for the yen, which had benefited from uncertainty about the Fed possibly slowing the pace of monthly bond purchases. The yen was also aided by the Bank of Japan’s June 11 decision not to expand its own stimulus efforts.

USD/JPY remain above Y95.00, but off session high on Y95.80 (initial resistance). Minor support placed at Jun 17 lows on Y94.30, extending to Y93.80 (Jun 13 lows). Below support comes at Y93.50 (Mar 25 lows) and then - at Y92.50 (Apr 2 lows). Above Y95.80 resistance is around Y96.20 (Jun 12 hourly highs) and Y97.00 (Jun 12 highs).

DATA AHEAD:

Japan Merchandise Trade Balance Total (May) will end the day’a data at 23:50 GMT.

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