www.forexnews.com
At 8:30:00 AM US January Business Inventories (exp -0.4%, prev -0.4%) US February Export Prices exp n/f, prev -0.1%) US February Import Prices (exp n/f, prev 0.4%) US Weekly Jobless Claims (exp n/f, prev 376k) At 9:30:00 AM US Q4 Current Account Balance (exp n/f, prev -94.9 Bln)
The dollar added to its losses against the European majors in London trade but stabilized above 128.60 yen after a sharp overnight selloff from 129.65 resistance. The euro broke key resistance at 87.85 cents and rose to a day's high of 88.22 after French industrial output rose 0.6% in January, more than expected. But with little other news to follow this morning, traders were expected to sit on the sidelines ahead of US weekly jobless claims, inventory and Q4 current account data later in the day.
Jobless claims are expected stay unchanged around 375,000 with layoffs shifting from manufacturing to service industries. But markets will be more interested in today's business inventory data and tomorrow's consumer confidence and industrial production figures.
Yesterday's small 0.3% rise in retail sales pointed out that consumer demand is only one part of the recovery equation. Fed Chairman Greenspan reiterated that much depends on investment spending and markets will look for evidence that stocks have finally been run down and that businesses can start raising production levels again. The consensus estimate is for inventories to have fallen by a healthy 0.4% in January, after a similar decline in December. Industrial production figures on Friday should also show a 0.2% increase in output, compared with the 0.1% and 0.3% declines registered in January and December.
French industrial output rose more than expected in January (0.6%) but the December figure was revised downward to -1.1% from -0.9%. This confirmed the trend of a trough in December which will be positive for the euro. Italian industrial production rose 0.2% in January, below expectations of a 0.3% gain.
EUR/USD rose to a session high of 88.22 after the data and its break of 87.85 resistance will open the door for a test of last week's trend high of 88.40. Resistance seen at 88.40 and needs to be broken to target key trendline resistance at 88.80. Tuesday's bounce off of 87 cents was also a signal that the market was not yet ready to sell EUR/USD below that level and the pair has remained above 87.10/00. A break of that key support would damage the bullish sentiment and force many dealers to call 88.39 the high and look for possible new lows below 86.29.
GBP/USD briefly broke through key resistance at 1.4180 and rose to a session high of 1.4192. Sterling rebounded from an overnight low of 1.4085 and could continue its rise against the dollar if it gets some help from the euro and Swiss franc which are pressing higher. However, sterling came under pressure against the euro as EUR/GBP rose above 62 pence to a 4-week high of 62.18. This kept a lid on GBP/USD and it will be important for the pair to maintain above trendline support at 1.4115. Fibonacci support at 1.4118, which marks the 61.8% retracement of the move from 1.3680-1.4827, will also be important to maintain.
USD/CHF also fell to a day's low of 1.6625 after earlier support at 1.6670 gave way to further selling. USD/CHF bottomed just above key support at 1.6620, the 61.8% retracement of the 1.6247-1.7221 move. Pressure on the franc came off as markets expect on March 21 the Swiss National Bank to keep rates unchanged, thereby limiting the downside pressure to the franc. Recent commentaries by SNB board members indicate that the high level of the CHF is a concern, but by itself not sufficient to affect the FX rate.
The Japanese government upgraded its economic assessment for first time since June 2000, saying the economy remains in a difficult situation, but there appear to be signs of bottoming out in some areas. Japan's Takenaka said the threat of a deflationary spiral was averted but downside risks remain. Japan expects a recovery in H2 2002 alongside a recovery in the US. However, Takenaka wants the BoJ to continue its efforts to provide ample liquidity.
In Tokyo trade the Ministry of Finance's Mizoguchi reiterated that forex moves should reflect fundamentals and that volatile currency moves are undesirable. This was the fifth session in a row that a Japanese official had cautioned the market over the dollar's fall, indicating that the yen's sharp rise last week was problematic for the Ministry of Finance, which prefers a stable currency. On Monday, Mizoguchi warned that the authorities were prepared to intervene in the markets if necessary. His comments were expected to keep speculators at bay. Therefore, the dollar's downside is seen limited after repeated warnings from Finance Ministry about the sharp rise in yen.
Since the recent yen rise was predominantly a speculative affair, Japanese warnings are likely to keep further gains in check. Moreover, given the fickle nature of speculators, recent yen gains are likely to reverse as the fiscal year end approaches and short-term measures to boost the Nikkei fail to hold up the yen.
But news of a massive surge in Japan's current account surplus for January was seen positive for the yen. The surplus in the current account recorded its second-biggest rise since records began in 1985, growing 224 percent from a year earlier to 709 billion yen ($5.48 billion). The trade surplus rose 424 percent, the biggest rise on record, to 336.8 billion yen. The surge reflected a recovery in the global economy which helped curb a slowdown in exports, as well as strong returns on Japanese investors' offshore investments.
USD/JPY bottomed at a day's low of 128.61 after the dollar recoiled from resistance at 129.65, which marks the 38.2% retracement of the 134.95-126.32 move. Failure to break above that level has brought speculators back to short USD/JPY again and the pair could fall as far as 125.28, the 50% retracement of the 115.75-135.15