Dollar Extended Loss, Eyes on Retail Sales by Yan Xu

The dollar continues to weaken across the board on expectation that the Fed will cut interest rates by half a percentage point next week. The euro today hovers above 1.3860 and set a record high at 1.3927 versus the dollar. The sterling climbed above 2.03 to test a resistance at 2.0350 against the dollar.

The main focus of the market is still on the US economy. Last Friday‘s weak US non-farm payrolls surprised the market and indicated the impact of credit crunch may spread into every aspect of the nation¡¯s economy. It is widely expected that the Fed may need to lower its benchmark rates on September 18 policy meeting to avoid recession.

The dollar was little changed after US weekly jobless claims came out at 319k, slightly better than the estimate of 325k. Tomorrow will see a bunch of economic data, including Germany August CPI, euro-zone August HICP, Canada July manufacturing shipments, Canada Q2 labor production rate, US retail sales, US import and export prices, US Q2 current account balance, US industrial production, US August Capacity utilization, and University of Michigan consumer sentiment index. US retail sales are seen growing 0.4% in August, versus a 0.3% rise earlier. Excluding autos, core retail sales are expected to rise 0.2%, down from a 0.4% reading in the previous month.

The resignation of Japanese Prime Minister Shinzo Abe and the speculation that the government may downgrade its economic assessment put pressure on the yen. The yen pared its gains versus the euro and sterling. The dollar bounced up to test 115.50 versus the yen.

The swiss franc was little changed after the Swiss National Bank unexpectedly raised interest rates by 25 basis points to 2.75% on Thursday.

As a commodity currency, the Canadian dollar rallied on rising oil prices. It rose to a 30-year peak at 1.0314 against the dollar.

EURUSD will face interim resistance at 1.3920, followed by 1.3950 and 1.3980. Additional ceilings will emerge at 1.40, backed by 1.4020. Support starts at 1.3880, backed by 1.3850, 1.3830 and 1.38. Subsequent floors are eyed at 1.3770.

GBPUSD encounters interim resistance at 2.03, backed by 2.0320 and 2.0350. Subsequent ceilings will emerge at 2.0380, followed by 2.04 and 2.0450. On the downside, support begins at 2.0280, followed by 2.0250 and 2.0220. Additional floors are eyed at 2.02, backed by 2.0180 and 2.0150.