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Although holding steady against the yen, the dollar retreated against the European currencies in spite of weak economic data. Initially, the greenback had been supported by strength in US Treasury bonds as investors re-entered the market after last week's sell-off, thus offsetting the downward impact from the fall in US stocks.
The euro recovered about one-half cent as it rose from a 4-session low of 87.06 against the dollar, despite Eurozone Q4 GDP data showing the first contraction since 1993 as it fell to -0.2% q/q from the previous 0.1%, or to 0.6% y/y from the previous 1.4%. Analysts projected that Eurozone Q4 GDP would decline to -0.8% in a sharp contrast to a US growth rate of 1.4% in the same period that highlights stronger economic vitality in the US this year. Upside capped at 87.60, 88.10--the 50% Fibonacci retracement of the move between the 90.63 high to the 85.63 low, 88.50-- the 200-day moving average, and 88.70-- the 61.8% retracement of the aforementioned move. Support is seen at 87.0, 86.70 and 86.0-- the support point lying on trend line extending from the 83.50 low through the 85.63 low.
The yen hovered slightly above its session low of 129.14 against the dollar in a choppy session, having been dragged overnight by the 2.6% or 311 point tumble in the Nikkei to 11607 as investors took profits in what amounted to the largest percentage decline in the Japanese stock index in 3 months. The Japanese currency was little impacted by news that the Government Pension Investment Fund would increase its weighting of foreign bonds to 3 trillion yen or 8% from 6%, as it also invests another 11 trillion yen in domestic stocks over the next seven years.
Also lending to bearishness sentiment towards the yen were comments by Japanese officials, such as Economics Minister Takenaka, indicating that the yen's sharp rise was undesirable. The MoF's Mizoguchi also had warned that monetary authorities were prepared to intervene in forex markets if necessary. Resistance is eyed at 129.20, followed by 129.65, 130.65 and 131.65 which marks the 38.25, 50%, and 61.8% retracements of the move from 134.95 to 126.32. Support holds at 128.0, 127.60, and 127.0. Subsequent support is seen at the 200-day moving average of 125.16. The pound shed around half-a-cent to a month low of 1.4091 against the dollar, weighed by an unexpected decline in UK January industrial production to -0.5% m/m from the previous -0.3%, or on an annual basis to -5.2% from the previous -4.6%. Manufacturing data also showed contractions of 0.4% m/m and 6.1% y/y, and thus the sluggish conditions in the UK manufacturing sector diminishes the chances that the Bank of England will be able to enact rate hikes in the near future
. Sterling came under renewed pressure after the NIESR said that UK GDP is anticipated to rise 0.1% in the 3 months to February compared with the previous period, thereby suggesting a stagnant economy. Traders also observed that the pound came under further selling pressure on news that Amersham Plc planned to purchase Pharmacia Corp's share of their Amersham Biosciences joint venture for 704 million pounds. Late in the session, however, the pound pared its losses as the EuroFX clawed their way higher against the dollar. Support is viewed at 1.4070, 1.4050 and 1.40. Upside capped at 1.4175, 1.4205 and 1.4235. The Fed's Mark Olson remarked today that the US economy is either at or near the end of its "down cycle". His belief was affirmed by the US Treasury's Taylor, who said that the production and jobs data show the US economy "has turned the corner". Taylor opined that he thinks the gains in productivity can continue, and reach a trend rate around 2% or even higher. US equities were weighed by disappointing earnings outlooks from Nokia and Lucent Technologies and fears about WorldCom's accounting practices after the firm announced it was being investigated by the SEC. The Dow rose 21 points to 10632 while NASDAQ fell 32 points to 1897. Markets await tomorrow's release of US retail sales, which are expected to rise to 0.9% in February from the previous -0.2%, or to 3.6% y/y from the previous 2.8%, boosted by surprisingly robust light vehicle sales. This week's US economic highlights include retail sales, jobless claims, business inventories, import/export prices, current account balance, PPI, industrial production, and the University of Michigan consumer confidence survey. Key Eurozone indicators consist of Spanish CPI, ECB monthly bulletin, French employment, French industrial production, Italian industrial production, German retail sales, French trade balance, and Italian CPI. Major data from Japan comprise the balance of payments and industrial production.