http://www.forexnews.com/ February 12, 2:00 AM: EUR/$..0.8769 $/JPY..133.40 GBP/$..1.4223 $/CHF..1.6832
At 2:00:00 AM Germany Dec Current Account EUR (exp -3.1 bln, prev 0.2 bln) Germany Dec Trade Balance EUR (exp 4.1 bln, prev 5.9 bln) At 4:30:00 AM UK Jan RPI Y y/y (exp 2.6%, prev 2.3%) UK Jan RPI-X y/y (exp 2.2%, prev 1.9%) UK Jan RPI Y m/m (exp -0.3%, prev 0.1%) UK Jan HICP y/y (exp n/f, prev 1%) UK Jan RPI m/m (exp -0.4%, prev -0.1%) UK Jan RPI y/y (exp 0.9%, prev 0.7%) UK Jan RPI-X m/m (exp -0.4%, prev 0.2%)
The dollar was unchanged in Asian trade as the Lunar New Year holidays kept volumes thin across Asia with half a dozen markets closed. USD remained under pressure after falling across the board on Monday to close NY trade at 87.64 cents to the euro and 133.43 yen. Strong options barrier in the 135-136 area repelled the dollar from an initial jump to 134.96 as fears of fund repatriation, and the Japanese government's waning interest in a weak yen gave the currency a reprieve. The euro also edged off an overnight 2-week high of 88.01 as offers in the 88.00/10 range kept the upside contained. The euro had less luck against the yen after a pullback from 117.90 on Monday held it near a day's low of 116.83.
Despite the yen's newfound resilience, in its monthly economic report the Bank of Japan kept its bearish view that the Japanese economy continues to deteriorate. Yet the BoJ on Friday kept its monetary policy unchanged, in the face of a possible banking crisis and deflationary crunch. This troubles government officials who for months have spoken out for a more favorable monetary policy to help pull the world's second largest economy out of recession. This prompted Finance Minister Shiokawa to pledge over the weekend at the G7 meeting that Japan would take steps to fix its banks and halt a slide in consumer prices.
USD/JPY held in a tight range between 133.20 and 133.60 in Asian trade, which is likely to please government officials ahead of President George Bush's visit later this week. Japanese officials are also likely to try to keep the yen to a range between 130-135 over the short term as the cost of the weak yen policy has been detrimental to asset prices as it undermines confidence in the ability to hold value. Given the weakened state of Japanese financial institutions amid falling stock prices, the Japanese are now more likely to shun yen weakness in order to restore confidence in the market. This should give the currency a brief reprieve in the near-term. USD/JPY support is seen at 133.08 which marks the 61.8% retracement of the 131.91 to 134.96 move. Follow up support seen at 131.90.
EUR/USD held near a day's low of 87.64 as offers at 88.00/10 kept the pair at bay. On Monday, the euro shot to a two-week high of 88.01 on a wave of stop-loss buying after breaking 87.50 with the help of GBP/USD buying. However, the euro still needs to clear 88 cents followed by key resistance at 88.75/80 to remove its bearish outlook. That level marks the 61.8% retracement of this year's high to low of 90.63 to 85.63. Support is seen at 87.50 and 87.00.
Despite offers at 88.00/10, dealers were encouraged by news that Germany will not be formally warned about its budget deficit at today's Ecofin meeting in Brussels where Germany is facing censure for allowing its deficit to come close to the 3% of GDP limit. An official warning would not only be embarrassing for Germany but could also highlight the difficulty facing the Eurozone's largest economy caught between the European Central Bank not lowering interest rates and Germany's own brain child the Growth and Stability Pact.
Today's focus in European trade will be on UK inflation which is expected to rise to 2.2% in January from 1.9%. The bank's target rate is 2.5% so the market will be interested in today's RPIX inflation data as it foreshadows Wednesday's Bank of England inflation forecast that should provide clues on interest rate hikes later this year. Stronger than expected inflation would lead to further expectations for the UK to be the first major country to raise interest rates this year as the BoE tries to stem debt fueled consumer spending.
GBP/USD held near resistance at 1.4235 after heavy buying of sterling by European banks on Monday drove GBP/USD through key support/resistance at 1.4180, triggering stop loss orders on its way to a high of 1.4245. This was right on last week's reaction high of 1.4247 which now needs to be broken in order to wage a move on key resistance at 1.4340, which marks the 61.8% retracement of the 1.4525-1.4038 move. Without a break of that level, the pair remains heavy, dealers say.
USD/CHF maintained above yesterday's low of 1.6820, which was also just pips above Friday's low. With support at 1.6875/80 taken out, the dollar needs to maintain above 1.6820 to avoid further fall to the 1.6685 area. This level marks the 61.8% retracement of the 1.6350-1.7229 rally, which should hold dealers say.
Economic data on Monday showed the Swiss January jobless rate rose to 2.6% from 2.4% in December, as expected. Recent comments from the Swiss National Bank show they are still concerned by the strong Swiss franc against the euro due to the pressure on trade. But the Bank sees more signs that the Swiss economy could recover in H2, and thus the direction of the next rate move remains open.