* Profit taking continued to erode USD/JPY's gains, which crested Friday at a two-month high of 124.74. While the retracement was signaled by a bearish doji signal on the daily candlestick chart, the pair remained in an inside range.
Only a drop below 123.83, Friday's low, and 123.64, Thursday's bottom, would likely accelerate long liquidation. Thus, the psychological barrier at 125.00 remains intact, to the joy of Japanese politicians who prefer to avoid escalating the trade conflict with China. A weak yen increases the competitiveness of Japanese exports in Asia at the expense of Chinese exports.
Japan's Liberal Democratic party's victory in a local Tokyo election Sunday had no impact on the yen, although its strong performance bodes well for the Upper House election on July 29. However, the LDP's victory has been largely factored into the market in light of the popularity of Prime Minister Junichiro Koizumi.
Koizumi's LDP won 53 seats in the 127-seat Tokyo assembly, five more than its previous total and exceeding the party's target of 50 seats. All but two of the 55 LDP candidates won seats.
The recent movement of Japan's corporate service price index indicates deflationary pressures are growing. May CSPI averaged 95.9, down 1.0% on the year and 0.5% on the month, the Bank of Japan said Monday. Year-on-year falls in the CSPI have been accelerating recently. The CSPI declined 0.3% in January, 0.7% in February, 0.8% in March and 0.7% in April.
Adding to the economic woes, sales at Japanese department stores fell 0.4% in May from a year earlier to 670.4 billion yen.
The outlook is mixed around the 124.00 Gann 50-point pivot, which targets 123.50 and 124.50.

Support: 123.92 (overnight low), 123.50 (downside target of the 124.00 Gann pivot), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 122.37 (60-day moving average), 121.63 (20-day moving average), 121.05 (Gann 50-point pivot; targets: 120.55/121.55).
Resistance: 124.00 (Gann 50-point pivot; targets: 123.50/124.50), 124.50 (overnight high), 125.50 (Gann 50-point pivot; targets: 125.00/126.00), 126.84 (April 2 high; 29-month high).

* EUR/USD's climb was facilitated by demand from fund type players. The pair remains in a trading range of 0.8496 to 0.8673, and only a break outside this sideways activity would attract new positions.
CPI in the German states of Bavaria and North Rhine-Westphalia rose 3.0% y/y and 2.9% y/y in June respectively, in line with forecasts. In a German press interview, Eurogroup chairman Didier Reynders said the Eurogroup must change from being an informal body in the medium term. The outlook is mixed to slightly bullish above the 20-day moving average at 0.8536.

Support: 0.8564 (overnight low), 0.8536 (20-day moving average), 0.8496 (June 20 low), 0.8411 (June 11 low; 6-month low), 0.8372 (Nov. 23 low).
Resistance: 0.8625 (overnight high), 0.8673 (June 15 peak), 0.8790 (38.2% Fibonacci retracement level of the June-October downtrend), 0.8848 (61.8% Fibonacci retracement level of the Nov. 27-Jan. 5 uptrend), 0.8889 (200-day moving average).

* EUR/JPY rose to a new 1-month high of 106.98, and traders are now bracing for a test of the resistance stemming from the 60-day moving average at 107.12.
The outlook is mixed to slightly bullish within a channel rising since June 1.

Support: 106.45 (overnight low), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend), 103.83 (20-day moving average), 103.41 (200-day moving average), 99.85 (June 1 low; 5 1/2-month low), 97.22 (Dec. 12 trough).
Resistance: 106.98 (overnight high), 107.12 (60-day moving average), 107.83 (100-day moving average).

* GBP/USD is opening on a firm tone in line with USD's slippage, but is confined to the previous day's range, when the pair hit an 18-day high of 1.4188. EUR/GBP is also stuck in an inside range.
The cable outlook is mixed.

Support: 1.4120 (overnight low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4173 (overnight high), 1.4034 (20-day moving average), 1.4223 (60-day moving average), 1.4314 (100-day moving average).