Jim Cote // Chicago, August 15 (BridgeNews) - The greenback continues to crumble with dollar longs capitulating across the currency board. The euro/dollar has broken out to 5-month highs, with the overnight top at the the 61.8% Fibonacci retracement level of the June-October downtrend. Liquidation by dollar bulls countered bids from Japanese importers to send the dollar/yen to a 2 1/2-month low of 119.98. Sterling also was pulled along in euro's strong wake.

U.S. business inventories in June fell 0.4%, the fifth straight monthly decline. The decline in inventories at factories, wholesalers and retailers was slightly greater than the consensus estimate for a 0.3% drop. Business sales plunged 1.4%, the biggest decline in nearly 9 years, putting the inventory-to-sales ratio at 1.43, up from 1.42 in May.
The euro/dollar has broken out in a bull run to 5-month highs. Look for short-covering to continue to support the continental currency, with the 0.9000 level now major support and major resistance at 0.9136 -- the 61.8% Fibonacci retracement level of the June-October downtrend.
At 0900 ET: Treasury announces size of debt buyback auction. At 0915 ET: July industrial production and capacity utilization (June: output -0.7%, capacity utilization 77.0%) At 1300 ET: August National Association of Home Builders report. At 1830 ET: ABC/Money Magazine releases consumer confidence polls.

Current Previous Change Global Global
NY open NY close low high

USD/JPY 120.26 121.78 -1.52 119.98 121.92 EUR/USD 0.9111 0.9029 0.0082 0.9019 0.9139 EUR/JPY 109.59 109.98 -0.39 109.42 110.04 GBP/USD 1.4368 1.4284 0.0084 1.4282 1.4380 USD/CHF 1.6661 1.6782 -0.0121 1.6632 1.6808 USD/CAD 1.5317 1.5363 -0.0046 1.5308 1.5367 AUD/USD 0.5274 0.5218 0.0056 0.5213 0.5281
USD/JPY sales pulled the pair sharply downward. Long liquidation countered bids from Japanese importers to send USD/JPY to a 2 1/2-month low of 119.98.
In its August economic assessment, the BOJ downgraded its outlook for the economy, saying economic adjustments are "intensifying further." The Bank said their worsened outlook reflects a substantial decline in exports and production. Reduced production is expected to drive down domestic demand, while pessimism about a global recovery is growing, the Bank said.
The outlook is bearish.

Support: 119.98 (overnight low), 119.65 -- Gann 50-point pivot; targets: 119.15/120.15, 119.09 -- 200-day moving average, 119.00 -- 38.2% Fibonacci retracement level of the August 1998-December 1999 downtrend.
Resistance: 121.92 (overnight high), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 123.04 (100-day moving average), 123.35 (20-day moving average), 124.00 (Gann 50-point pivot; targets: 123.50/124.50).

EUR/USD continued to gain in early trade. However, the rally was capped by major resistance at 0.9136 -- the 61.8% Fibonacci retracement level of the June-October downtrend.
Traders say there has been good two-way business in USD/Europe. Offers from short-term speculative players have been joined by some longer-term players, said to be reducing their USD exposure on yield arguments.
The outlook is bullish.

Support: 0.9019 (overnight low), 0.9050 (upper Bollinger band)
Resistance: 0.9139 (overnight high), 0.9136 (61.8% Fibonacci retracement level of the June-October downtrend).

EUR/JPY saw Jpanese bids lift the cross to an intraday high of 110.05, before sales in USD/JPY pulled it back to the 109.50 area.
The outlook is neutral after the long rally.

Support: 109.42 (overnight low), 108.89 (20-day moving average), 107.43 (100-day moving average), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend), 104.54 (June 20 low).
Resistance: 110.05 (overnight high), 110.15 (Aug 2; 13 highs; 3-month peak), 111.02 (50% Fibonacci retracement level of May 1999-October 2000 downtrend).

GBP/USD rose in response to the release of U.K. employment data and the minutes of the last MPC meeting.
In the foreign exchange markets, GBP/USD has climbed to 1.4314 from 1.4295 and EUR/GBP has dipped to 0.6333 from 0.6242 since the data and minutes were released in the markets.
The surprising strength in U.K. employment data has been the main factor in the sell-off of debt markets and the slight firming of sterling. The minutes of the MPC's last meeting highlight the desire by the group to pursue a gradualist rate cut strategy, which is no surprise. But speculators in short sterling and Gilts have been hoping for a more aggressive stance from monetary authorities.
The outlook is bullish in the wake of the euro.

Support: 1.4282 (overnight low), 1.4251 (20-day moving average), 1.4206 (100-day moving average), 1.3911 (June 20 low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4380 (overnight high), 1.4353 (Aug. 2 high; 2 1/2-month peak), 1.4414 (May 21 peak).