29 June 2001, 18:39  US FX Daily Outlook: Euro and yen firm on profit-taking (part 2)

USD/JPY bulls sharpened their horns overnight and made another attempt at 125.00 but failed to attain their goal. Prime Minister Junichiro Koizumi's trip to the U.S. should pressure USD/JPY. USD/JPY was lifted to an 11-week high of 124.90 in early U.S. trading. However, profit taking from a range of Japanese players ahead of the weekend turned into a rout after Japanese Finance Minister Shiokawa said a rapid depreciation of the JPY would be troublesome. Additionally, Minister of State for Economic and Fiscal policy Takenaka said Japan does not plan to dopt a weak JPY policy, reducing the chances such policy would be announced at the Bush-Koizumi meeting of Saturday as some have speculated. USD/JPY dropped to an intraday low of 123.77 while EUR/JPY hit a 10-day low of 104.65. USD/JPY then lifted off the 2-day low of 123.77 on bidding from a Chinese player to reach the 124.45 area. Dealers said market players were using the lower levels to re-establish short JPY positions in nticipation of further weak Japanese data, with Monday's Tankan a particular focus. Japanese core CPI fell 0.7% y/y in May, the biggest y/y decline ever. The outlook is negative with profit-taking and Prime Minister Junichiro Koizumi's trip capping advances.
Support: 123.80 (overnight low), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 122.31 (60-day moving average), 121.05 (Gann 50-point pivot; targets: 120.55/121.55), 122.51 (20-day moving average), 119.65 (Gann 50-point pivot; targets: 119.15/120.15), 119.00 (38.2% Fibonacci retracement level of the August 1998-December 1999 downtrend), 118.30 (June 1 trough; 3-month low), 118.25 (Gann 50-point pivot; targets: 117.75/118.75).
Resistance: 124.88 (overnight high), 124.00 (Gann 50-point pivot; targets: 123.50/124.50), 125.50 (Gann 50-point pivot; targets: 125.00/126.00), 126.84 (April 2 high; 29-month high).
* EUR/USD climbed back from the brink of the low for the year on position-squaring and profit-taking from USD bulls prior to the end of the second-quarter and 4th of July holiday-shortened week. Technically, EUR/USD found support at its 20-day moving average of 0.8439. The re-establishment of short JPY positions following heavy overnight short covering lifted the EUR across the board in morning trading Friday, despite a generally firm USD. Euro zone M3 rose an above-forecast 4.9% y/y in May. Euro-zone M3 grew a greater than forecast 4.9% y/y on the 3-month moving average measure, which, coupled with euro-zone inflation well in excess of the ECB's 2% y/y limit, suggests the bank will be in no mood to cut the refi any time soon. The Swiss KoF institute barometer of economic developments over the next 6 to 9 months fell to 0.25 in May from 0.34 in April, while the 2001 Swiss GDP forecast in Switzerland's June BEC survey slipped to 2.04% from 2.14% in the March survey. ECB Chief Economist Issing said the bank is "worried" about euro-zone inflation, while German Chancellor Schroeder said he is not in a position to give the ECB advice. Schroeder later said German GDP will fall short of the official forecast in 2001. The current official forecast is for growth of "around 2%."
EUR/GBP tracked the EUR higher elsewhere, pulling off a 3-week low around 0.5985 to hit an intraday high around 0.6040, while cable traded a 1.4025-1.4080 range. U.K. consumer credit rose an as-forecast 1.321 bln GBP in May while lending secured on dwellings rose to a record 13.371 bln GBP in the same month. French national statistics institute INSEE forecast French GDP will grow by 2.3% in 2001. French May PPI rose 0.5% m/m while the French unemployment rate was unchanged from April at 8.7%. Euro-zone M3 data for May should be released around 1030 GMT, while revised German IP data for April may be released during the day. German economics minister Mueller speaks at 0800 GMT and BBK President Welteke speaks at 1330 GMT. The outlook is slightly bullish on profit-taking and technical support.
Support: 0.8438 (overnight low), 0.8539 (20-day moving average), 0.8411 (June 11 low; 6-month low), 0.8372 (Nov. 23 low), 0.8245 (1.382% Fibonacci extension level the Jan. 6-May 4, 19 downtrend; target of fifth Elliott wave), 0.8228 (Oct. 26 low; lifetime low).
Resistance: 0.8489 (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).
* The JPY's losses took EUR/JPY off a 9-day low of 104.65 to the 105.55 area and helped EUR/USD ease away from its overnight, 2-week, low of 0.8431 to an intraday high of 0.8488. The outlook is somewhat friendly on profit-taking.
Support: 104.66 (overnight low), 99.85 (June 1 low; 5 1/2-month low), 97.22 (Dec. 12 trough).
Resistance: 105.56 (overnight high), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend).
* U.K. consumer confidence data, released at 2300 GMT on Thursday, jumped in June to its highest level since the start of 2000, according to the latest GfK barometer produced for the European Commission. The barometer measured positive 6 in June, compared with positive 2 in May. The survey reinforces other signs that consumers are unconcerned by the weakness in the global economy and happy to spend freely. All five measures that make up the indicator increased in June, signaling confidence in the general economic outlook as well as personal finances. Gfk said the outcome of the general election may also have given a boost to confidence, just as it did in 1997.
EUR/GBP tracked the EUR lower elsewhere, hitting a 3-week low around 0.5985, while cable dipped to an 8-day low around 1.4030. The GfK consumer confidence barometer hit its highest level since the start of 2000, at a reading of +6 in June, up from +2 in May. UK consumer credit and M4 data for May are released at 0830 GMT. The outlook is mixed although the threat of merging with the euro is seen capping rallies.
Support: 1.4036 (overnight low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4090 (overnight high).

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