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The yen was little changed in Asian trade from its New York closing levels of 109.66 against the euro and 119.78 versus the dollar, as euro/yen cross selling kept it supported across the board. USD/JPY topside is seen capped at 120.00 and risks further downside after yesterday's broad recovery tailed off. Rumor of options to be set off at the 119.00 level could force a break to 118.00 if triggered, so the market is closely watching the dollar/yen.
However, the dollar has still not broken below yesterday's low at 119.65 and is seen supported by comments from the Ministry of Finance's Kuroda, who reportedly told JIJI press that FX markets are not reflecting fundamentals. While Kuroda did not explicitly say so, he has on several occasions cautioned against the yen's appreciation by keeping the threat of intervention alive. The rising yen is particularly disturbing to Japanese officials, since it crimps their exports, which are desperately needed to boost Japan's floundering economy.
Ongoing weakness in the Nikkei has also failed to weigh on the yen as it continues to stimulate repatriation of foreign assets ahead of the September 30 accounting change. The sharp rise in the yen against the dollar has added pressure to the Nikkei over the past month, giving traders the impetus to drive it to fresh 16-year lows on the supposition that it would hurt exporters' overseas earnings, who are already hurting from a prolonged fall in demand. Nikkei is trading up 37 points, or 0.35% at 11168, with little positive news to lift shares off 17-year lows.
The dollar also failed to maintain overnight gains against euro as the single currency was supported by speculation that the European Central Bank would soon move to boost economic growth by cutting interest rates. The euro regained earlier highs around 91.64 cents, as further evidence of falling growth and inflation coupled with a rising currency would give the ECB enough reason to look beyond their 2.0% inflation target. A rate cut is seen supporting the euro. However, this wouldn't be the first time the ECB has dissapointed markets. Therefore, keeping rates on hold could send the euro to test 91-cents and possibly the August 21st low of 90.80, which if broken would further damage the Bull Run, causing liquidation of long euro/dollar positions.
Today's data from Germany showed a greater than expected fall in both producer prices and import prices. July PPI fell to 0.5% bringing the year on year rate down to 1.7% from 3.6% in June. The subsiding inflation is a positive development for the Eurozone, as it gives the European Central Bank scope to cut interest rates to counter the economic slowdown.
Sterling fell from yesterday's high of 62.95 pence to the euro, but is still off of this week's 4-1/2 month lows against the euro around 63.55. Strong resistance around 64 pence is seen limiting the euro's gains. Sterling rebounded in tandem with the euro down to a day's high of $1.4481 about a cent lower than this week's five-month high of $1.4585. Support is seen at 1.440, 1.4360 and 1.4330. Resistance is eyed at 1.4490, 1.4550, and 1.4590.
Keeping an underlying weak tone to the dollar was yesterday's release of the FOMC minutes, which confirmed established fears about the US economy's long awaited rebound. Members voted 9-1 to ease rates in June to its lowest level in 7 years of 3.5%, seeing little risk of inflation but warning about foreseeable deflation. The Fed believes continued spending growth will likely sustain the economy for the rest of the year, although they see excess capacity weighing on investment. However, the central bank expressed its hope the US economy would strengthen later in 2001 and 2002.
The dollar may also find further weakness from an expected decline in durable goods orders for the second straight month to -0.4% from the previous -1.7% due to sluggish demand. Meanwhile, new home sales are forecasted to edge down in July to 911k from the previous 922k, but remain strong as lower interest rates spur on prospective homeowners.