Jim Cote // Chicago, July 3 (BridgeNews) - The British pound sterling fell overnight as Japanese interests sold sterling. U.S. action is expected to be light as many traders have decided not to show for the shortened session. European trade is feeling the impact of those absences as trade is thin.

Many U.S. markets such as equities and currency futures close at 1300 ET in observance of the U.S. Independence Day holiday.
The domestic economic agenda is comprised of the May factory orders. revised. The market will be looking for the positive impact of the Fed's 275 bps of rate cuts this year to begin showing up in the data. The median forecast in a BridgeNews poll of analysts is for U.S. factory orders to have risen 1.6% m/m in May. In April, factory orders fell 3.0% m/m. The data are released at 1000 ET.
The JPY was a significant mover in the overnight session. JPY firmed on remarks in the Financial Times by Japanese Prime Minister Junichiro Koizumi. The AUD firmed following some extremely strong Australian housing finance data.
USD/JPY
dropped to a one-week low of 123.67 in response to a Koizumi interview in which he said that Japan has no intention to push the JPY down. The pair was taken back to the 124.10 area on the re-establishment of short JPY positions and bidding in EUR/JPY. Additionally, ex-BOJ official Nakagawa reportedly said that BOJ governor Masaru Hayami would probably accept a gradual weakening of the JPY. However, the pair ran into heavy selling from European names and dipped back to the 123.80 region.
Former vice finance minister for international affairs Sakakibara said Japan's monetary authorities should leave the JPY alone, and that Japan seems to have already entered recession. LDP Secretary General Yamasaki said he is not considering an extra budget at this moment. The outlook is bearish for the pair as the yen is on a near-term upward roll.
Support: 123.69 (overnight low), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 122.30 (60-day moving average), 121.05 (Gann 50-point pivot; targets: 120.55/121.55), 122.97 (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: 124.15 (overnight high), (Gann 50-point pivot; targets: 125.00/126.00), 126.84 (April 2 high; 29-month high). For additional levels see story .879.

EUR/USD
was lifted to an overnight high of 0.8488 on bidding from European names, but then ran into selling from a major US bank. A large number of option triggers are reported at the 0.84 figure.
Economic Sentiment in the euro-zone continued its fall in June, coming in at 101.1, according to the European Commission. The market had expected a 101.3 reading, after the 101.8 (revised from 101.7) registered in May. Industrial confidence fell to -7 from -5 in May, while Consumer confidence dropped to -5 from -4 in May, both were exactly-in-line with expectations. German economic sentiment dropped to 98.9 from 99.5 in May, as consumer sentiment dropped to -7 from -4 and industrial confidence fell to -14 from -12. In France industrial confidence fell to -5 from -1, while consumer confidence dropped to -5 from -4.
Euro-zone unemployment was 8.3% in May, unchanged from April, according to figures from Eurostat. The 8.3% was exactly in line with market forecasts. German unemployment rose from 7.7% to 7.8% from April to May, while French was unchanged at 8.5%. Spanish unemployment dropped 0.1 of a percentage point to 12.9%, while data was unavailable for Italy.
The outlook is bearish as traders expect the 0.8400 point to be tested.
Support: 0.8457 (overnight low), 0.8537 (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: 0.8488 (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).

EUR/JPY
Overnight, the bidding in EUR/JPY lifted the cross off a 2-day low of 104.71 to the 105.25 area, before it followed the pair lower.
The outlook is bearish more on euro weakness rather than yen strength.
Support: 104.71 (overnight low), 99.85 (June 1 low; 5 1/2-month low), 97.22 (Dec. 12 trough).
Resistance: 105.39 (overnight high).

GBP/USD
The GBP fell across the board overnight. Dealers said Japanese players have been selling GBP/JPY heavily. The cross itself has fallen out of a narrow range below 175.50 to a 2-day low around 174.60, sending EUR/GBP to an intraday high around 0.6005 while cable hit a 2-day low around 1.4085.
Britain should postpone assessing entry into the European single currency, even though its economy is converging with the euro-zone, the FT reported, citing a study to be published later Tuesday.
The paper said that the report by PwC, the financial services firm, concluded that because of an overvalued pound and shaky global economy, it would be wise for Britain to wait and see whether the convergence would last before committing itself to entry.
It echoes the opinion of the governor of the Bank of England, Sir Eddie George, who recently warned that the current strength of the pound posed a "real obstacle" to Britain joining the single currency.
U.K. construction sector growth expanded at its fastest rate for 12 months in June, according to the latest survey from the Chartered Institute of Purchasing and Supply. The sector's activity index reached a seasonally adjusted 59.8 in June, up from 58.2 in May.
The U.K. engineering sector is almost certainly now in recession and growth for the whole of this year is likely to be sharply lower than previously forecast, the Engineering Employers Federation said on Tuesday. The results of the latest quarterly EEF/Robson Rhodes Business Trends Survey showed tha engineering output fell in the second quarter, with new orders sharply lower.
The outlook is bearish amid Japanese selling.
Support: 1.4094 (overnight low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4173 (overnight high), 1.4016 (20-day moving average), 1.4201 (60-day moving average).