Dollar Firm, Awaiting Job And Services Data

The dollar extended the recent rally against other major currencies overnight, staying firm in Asian session. The dollar index rose to month high of 83.62, and is still in progress to retest 84.50 resistance. The EUR/USD dropped below the 1.3 psychological level, and remains weak for the 1.2746/96 support zone. The GBP/USD is heading to 1.5 and below. The USD/JPY is holding comfortably above 100 psychological level too. Expectation on the pace of Fed's tapering remains the dominating driving force in financial markets, and investors are today looking at another round of important economic data from the U.S. This includes the ADP job report which is expected to show 161k growth in price sector jobs in June, Challenger planned layoff figures and initial jobless claims. In addition, the ISM services data is expected to improve slightly to 54.3 in June.

New York Fed Dudley yesterday expressed his optimism regarding recovery and expected growth to "pick up notably in 2014", which would warrant reduction in the asset purchases. He noted that "private sector of the economy should continue to heal, while the amount of fiscal drag will begin to subside". He said inflation expectations are "pretty firmly anchored" with the 2% target, and the policy should be designed to "reduce to the absolute minimum amount possible" risk of Japan style outcome. Fed governor Powell, on the other hand, assured that "the case for continued support for our economy from monetary policy remains strong" and policy would remain accommodative "for quite some time". He expected inflation to "return gradually" to 2% and that the U.S. will "continue to make progress in reducing unemployment".

ECB president Draghi said that the debt crisis weighed on the "international use of the Euro" which declined moderately in some market segments, and “the persistent fragmentation of the euro-area financial system is one of the main underlying causes of these developments, as it affects the depth and liquidity of euro-area capital markets.” The ECB is expected to leave the key interest rate at 0.5% record low this week. The BoE will also announce policy decision on Thursday, and its new governor, Mark Carney, is expected to stand pat too. As for today, focus will be on eurozone services PMI and retail sales, as well as U.K. services PMI.

Earlier today, data released in Australia indicated that retail sales rose less than expected by 0.1% mom in May. Trade surplus widened to AUD 0.67b in May. Exports rose 1.5% yoy, with strong growth in rural goods. Meanwhile, imports dropped -4.7% yoy with sharp contraction in capital goods.