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The yen rose one-half yen to a 1-week high of 132.0 against the dollar and one-third yen to a 1-week high of 114.81 against the euro, underpinned by yen repatriation from a Japanese bank for a sale transacted late last year and by news that Japanese Prime Minister Koizumi asked his economic ministers to formulate anti-deflation measures prior to President Bush's visit to Japan this weekend. Also lifting the Japanese currency was the rebound in the Nikkei index back above the key 10,000-level. Additionally, the yen was supported by a stronger-than-expected current account surplus that surged 42% from the previous year to 971.8 bln yen in December, arising more from an increase in the income surplus that outpaced its trade surplus.
USD/JPY support is seen at the 132-yen level, also a double bottom formation, backed by 131.70 and 131.20. Upside capped at 133.0, 133.35/40 and 133.70.
The euro rallied two-third cents to a session high of 87.41, uplifted by Bank of France Governor Trichet's comments that the euro is currently undervalued. He reiterated that a strong euro is in Europe's interest, and moreover, highlighted signs of recovery present in Europe and the US. In contrast, the ECB's Welteke said he was not certain that an economic recovery will start and stick in Europe and the US, and thus advocated a steady hand monetary policy is appropriate at the moment.
Overnight, the single currency had fallen to a 1-week low of 86.80, weighed by an unexpected drop in German retail sales to -3.4% in December from the previous month's 1.6%, or to -4.1% y/y from the previous -0.4%. Separately, the European Central Bank noted nothing new about its inflation or growth outlook, but repeated that interest rates are appropriate to bring inflation below 2% this year.
EUR/USD resistance is seen at 87.40-50, followed by 88.20 and the 200-day moving average at 88.50. Key support holds at 86.80, 86.45/50 the 61.8% retracement of the most recent climb starting on Feb 1 and 85.50.
Both the pound and the Swiss franc trailed the euro up towards their session highs against the dollar. Cable climbed over half-a-cent to a session high of 1.4311 with next upward target eyed at 1.4340, 1.4390 and 1.4470. Support for the pair stands at 1.4255, 1.4210 and 1.4150. USD/CHF tumbled 1-1/3 centimes to a session low of 1.6956 facing support at 1.6950, 1.6930 and 1.690. Upside capped at 1.7040, 1.7080 and 1.710.
At the beginning of US trading, the dollar had received a mild lift as traders reacted to the fall in US jobless claims to 373k in the week of February 9 from the previous revised 381k. The 4-week average dropped as well for the fourth consecutive week to its lowest level since last August to 376k in the week of February 9 from the previous revised 381,500. However, US continued claims rose to 3,429,000 in the week of February 2 from the previous revised 3,412,000. The declines in both the headline figure and the 4-week moving average indicate that the pace of layoffs is easing.
Another positive sign for the US economy was the 11th straight month of decline in US Business Inventories, which rose to -0.4% in December from the previous revised -1.2%. US business sales were unchanged in December at -1.6%, and thus the stock/sales ratio held steady at 1.39 months' worth in December.
Although today's release of US import prices did not have much impact on the currencies, it showed that import prices posted their largest increase since September 2000 to 0.4% in January from the previous -0.9%. This came about due to the steepest rise since September 2000 in petroleum import prices of 6.0%. Meanwhile, US Export prices eased to -0.1% in January from the previous revised -0.3%.
Separately, US Treasury Secretary O'Neill asserted today that the US' ability to increase productivity means that the currency will be strong. Analysts interpreted his remark to be a validation of the existing strong dollar policy.
US stocks pared their gains on concerns of widespread corporate accounting mispractices in light of today's Enron hearings. For most of the session, equities had rallied on a combination of the decline in jobless claims, a rise in chip shares due to optimism about an economic rebound and in oil stocks due to comments from President Bush that US would take any necessary action against Iraq, and by Hewlett-Packard's annnouncement that its earnings beat analysts' expectations. The Dow edged up 12 points to 10001 but NASDAQ slipped 15 points to 1843.
The first piece of US data to be released tomorrow morning is the Producer Price Index, which is expected to rebound to 0.3% in January from the previous -0.7% on increasing oil and gasoline prices. PPI Ex-Food/Energy is also forecasted to rise to 0.1% in January from the previous -0.1%.
The next release will be US industrial production for which analysts project will either hold steady at -0.1% m/m or dip to -0.3% in January because of a decline in hours worked. Manufacturing in most areas is likely to have slowed, with the exception being for high-tech which should rise for the second straight month to 1.0% in January vs. the previous 0.3% as orders accelerate.
Finally, the University of Michigan Sentiment survey is anticipated to edge up to 93.4 in the preliminary February reading from the previous 93.0. However, other economists estimate the index will fall to 90.8 because of uncertainty in the stock markets. Therefore, both the current conditions and expectations components of the confidence survey are expected to fall as well.
Key Eurozone indicators consist of German CPI and HICP, French employment, French trade balance, French industrial production and Italian industrial production. The remaining data release from Japan is Tokyo department store sales.