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At 2:50:00 AM France Jan CPI m/m final (exp 0.1%, prev 0.1%) France Jan CPI y/y final (exp 1.9%, prev 1.4%) At 4:00:00 AM Germany Feb IFO business climate (exp 87.3, prev 86.3)
The dollar gave back some of its overnight gains against the European majors and held within a familiar range against the yen in Tokyo trade on Tuesday. FX markets are seen trading steady ahead of Japan's anti-deflation measures and Greenspan's speech on Wednesday as well as the Bank of Japan's monetary policy meeting on Thursday. Key German Ifo business survey should also hold EUR in a tight range ahead of its announcement at 4:00 AM.
USD/JPY hovered in a tight range around 133.80 after the draft release of the much-anticipated anti-deflation package to be announced on Wednesday. Markets were unimpressed with the governments waffling over whether it would take decisive action to clean up the banking sector. The government reiterated it would take all necessary steps, including capital reinforcement of the banks, if a threat of a financial crisis emerged. But dealers were unconvinced despite FinMin Shiokawa's comments which hinted that the package may include a decision on the highly controversial issue of whether to inject public funds into the ailing banking industry.
On Thursday, the Bank of Japan's monetary policy meeting will also be of interest to traders because Japanese officials have called on the central bank to increase its purchases of Japanese government bonds to 1 trillion from 800 million. However, if a concrete reform package is not unveiled, the Bank may decide not to act since increased liquidity is ineffectual amid rampant deflation and lack of demand. Therefore, barring a strikingly bold reform package (which is unlikely) the yen is in a lose-lose situation because if the BoJ takes no action the yen is likely to weaken on disappointment. Or, if the BoJ does inject more liquidity, the yen could, as in the past, weaken in reaction. Upside capped at 134.50, followed by 134.85 and strong resistance at 135.15. Support holds at 133.20, 133.0 and 132.50.
EUR/USD rose to a day's high of 87.15 but remained heavy after twice failing to break resistance at 87.80 last week. The dollar was also helped by yesterday's rally in US stocks and optimism about Fed Chairman Greenspan's testimony before the House Financial Services Committee on Wednesday. Greenspan's outlook is expected to be more upbeat and should be supported a number of key US indicators including GDP, Chicago PMI, and the ISM Purchasing Managers survey which are all forecasted to show remarkable improvement, reflecting the emerging recovery in the US. Markets will look for any hints that the chairman is becoming more bullish on the prospects for the US recovery (ie. Business investment, final demand) and whether the Fed may soon shift its bias to neutral from easing.
Meanwhile, markets will look at today's key German Ifo business survey which is expected to rise to 87.3 in February from 86.3. Business confidence probably improved again but has yet to reach the pre-September 11 level of 89.3. However, expectations have greatly improved, as evidenced by last week's surge in the German ZEW sentiment survey to 50.2 from 35.9 in January, which foretells a significant improvement over the next 6 months. Further gain is seen as bullish for the euro, but resistance at 87.80 should hold. Support seen at 86.80, 86.50. Resistance at 87.15, 87.40, 87.80.
GBP/USD remained near a day's low of 1.4250 after a failed attempt to break key resistance at 1.4335 on Friday resulted in a selloff to 1.4240 on Monday. GBP/USD support seen at 1.4235, 1.4200 and 1.4150. Upside capped at 1.4280, 1.4340, 1.4365 and 1.440. Sterling remains weak after back-to-back surprise declines in UK retail sales were seen as a sign that the UK's two-speed economy may be converging finally. With consumer spending falling and manufacturing slowly rising, it stands in sharp contrast with the upbeat outlook for the US. GBP also likely to remain under pressure on further EMU concerns which can weigh on the pound because markets anticipate the pound to join at a lower value. Moreover, fears of pension reform that could divert asset away from UK investments, and a possible tax hike to pay for health care reform are two other factors weighing on sterling over the past few days.
EUR/CHF fell to key near term support at 1.4750 in late Tokyo trade on speculation that the Swiss National Bank will not cut its interest rate target in March despite a weak economy. Three-month Swiss franc LIBOR was fixed slightly lower on Monday at 1.69333 percent compared to 1.70000 on Friday and remains in the lower half of the 1.25 to 2.25 percent target range of the SNB after its December rate cut. Markets will also focus on tomorrow's key Swiss KoF leading indicator for January which is expected to show a slight improvement in the Swiss business outlook. But given the sliggish view in comparison to recent US data, USD/CHF is expected to add to its recent gains. USD/CHF rose to a day's high of 1.6985. Support is seen at 1.6940 and 1.6880.