No key data from Japan.
The euro fell to a 3 and a half-week lows of $0.8866 after dollar posted its biggest one-day gain in six years as surprisingly optimistic US NAPM data pointed out that manufacturing sector may be bottoming. The dollar rose 2.3% vs. the euro from $0.9075 yesterday to $0.8866. US NAPM unexpectedly rose to 47.9 in August from the previous 43.6 and higher than market expectations of 44, although still remaining below the key 50-level in contraction territory for the 13th straight month. The substantial expansion in NAPM suggests that manufacturing activity, which accounts for one-sixth of the US economy, has bottomed and is beginning to recover. The single currency was further sold on a report by the German newspaper Bild that German jobless fell 2,000 in August from July as Eurozone economy continues to stagnate. The single currency failed to rally on the earlier news that Eurozone retail sales rose unexpectedly by 0.6% in June to rebound from the previous 0.1% decline.
Bundesbank head Ernst Welteke said today that falling inflation and tax cuts were reasons to be positive of a Eurozone upturn, but noted the risks on the investment side.. Welteke referred to the ECB's 25-bp rate cut on August 30 and reiterated that the new interest rates of 4.25% are compatible with the preservation of price stability in the medium term. Support is seen at 88.40, 88.0 and 87.70. Upside capped at 90.0, 90.50 and 90.80.
USD/JPY soared over one yen to a 3-session high of 119.64 as the dollar climbed against the majors after the release of the improved NAPM manufacturing survey. Also weighing on the yen were a series of verbal warnings by monetary officials about the Japanese currency's rise contrary to its fundamentals. Finance Minister Shiokawa is reported to discuss the yen's strength and possibly means to counteract its appreciation in his upcoming meeting with US Treasury Secretary O'Neill. Creating some confusion in the yen's direction were overnight comments by Bank of Japan official Mitani that he believed Japan would intervene to correct rapid movements in the yen, contradicting remarks by BoJ Governor Hayami, who said that intervention in FX markets fell under the auspices of the Finance Ministry. PM Koizumi may be forced to break his promise and lift a limit on 30 billion yen bond issuance if the tax revenue falls short of the expected 50 trillion yen. Koizumi stressed that bad loans disposal will be carried in 2-3 years. Q2GDP due on September 7 is likely to show contraction by about 1.2% due to severe economic situation and plunge in Nikkei to a fresh 17 years low. Thanks to an upward revision of Q1 GDP to a positive number, Japan will officially avoid technical recession, (two consecutive quarters of negative growth) although many believe that the world second largest economy is already in. Resistance is seen at 119.75, 120.0 and 120.20. Support is viewed at 118.60, 118.0 and 117.65.
Tomorrow's release of Q2 '01 US productivity is forecasted to be revised down to 1.9% from the preliminary estimate of 2.5%, and the effect will likely be negative for the dollar since it has relied on strong productivity as its raison d' tre. This week's other US economic indicators include the NAPM non-manufacturing survey and the August Labor market report. St. Louis Fed President William Poole and San Francisco Fed President Parry will speak on Wednesday and Friday, respectively.
From the Eurozone, major data due for release consists of Services PMI, PPI, German manufacturing orders, Italy's ISAE industrial confidence survey, foreign trade and German industrial production. Economic highlights from the UK comprise the CBI survey of distributive trades, Services PMI, housing starts, and industrial production. The main event in the UK is Thursday's Bank of England Monetary Policy Committee meeting, even though interest rates are expected to remain unchanged at 5.0%. Noteworthy data from Japan are the MoF corporate survey, the indices of business conditions and GDP, which is expected to reflect Japan's economic plight. Analysts are forecasting April-June GDP to tumble anywhere from 0.8% to 1.2%, which will likely put downward pressure on the yen.