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At 2:45:00 AM France Feb Consumer Spending m/m (exp 0.3%, prev -0.4%) France Feb Consumer Spending y/y (exp 1.2%, prev 1.2%) At 4:30:00 AM UK Feb M4 lending (prov) (exp 6.4 bln, prev 11 bln) UK Jan Avg Earn 3 month y/y (exp 2.8%, prev 3.3%) UK Feb PSNCR (exp -0.3 bln, prev -12.1 bln ) UK Feb Unit Wage 3 month (exp 3.8%, prev 4%) UK Feb Claimant Count (exp 4k, prev -10.6 k)
UK Feb M4 m/m prov (exp 0.4%, prev 0.4%) UK Feb M4 y/y prov (exp 6.2%, prev 6%)
The dollar edged lower against the yen in Tokyo trade after running into heavy exporter and option-related selling around 131.45 overnight. Dealers cited profit taking from the dollar's rapid rise, but noted only a break below 131.80 support would be worrisome. Still weighing on the yen are indications that foreign demand for Japanese shares is fading and fund repatriation by Japanese investors is ending this month, which should further encourage dollar bulls. Rumors of Japanese pension fund demand for foreign assets also weighing on the yen.
The Bank of Japan today kept its monetary policy unchanged by a majority vote as expected and maintained its current account target of 10-15 trln yen. The Bank reiterated that it would provide needed liquidity irrespective of its target for some time to ensure stability. In addition, today's meeting was the last for easing proponents Nobuyuki Nakahara and Toshio Miki, whose terms expire on March 31. This will lessen the pressure on the BoJ to adopt more unorthodox measures to combat deflation.
Reform measures are also slowing and Japan will likely put off the key structural restructuring needed which will translate into a weaker yen. On Monday PM Koizumi backed away from his pledge to cap JGB issuance at 30 trillion yen a year, and political reformer Kato's resignation dealt a blow to reform efforts since he was one of the major supporters of change in the LDP.
USD/JPY rose to a day's high of 132.42 as the bull run from 126.32 carried it through key Fibonacci resistance levels and back above key support at 131.80. Resistance seen at 131.45 followed by 132.95/133.00. Support seen at 132.00, 131.80 and 131.65.
Dealers expect there to be a lot more room for action in USD/JPY than EUR/USD over the coming weeks because the dollar will struggle to make gains against the euro as the market has shifted from worrying about the ECB not cutting rates to worrying how fast the Fed will raise rates. Moreover, a fast recovery will be tempered by expectations of rate hikes, which could weigh on the dollar. Meanwhile, the Eurozone will benefit from a US-led recovery, aiding the euro by association.
EUR/USD traded in a tight 88.00-88.25 range after failing to break 88.40 resistance on Tuesday. Last week's drop from highs around 88.60 were seen weighing on the euro, but its bounce off of 87 cents was also a signal that the market was not yet ready to sell EUR/USD below that level. The pair has remained above 87.10/00 since then and only a break of that key support would turn sentiment bearish. Support seen at 88.00, 87.80 and 87.50. As long as EUR/USD support at 87.80 holds, there is still a chance for another try at trendline resistance of 88.80.
GBP/USD remained below trendline resistance at 1.4280 after cable briefly rose to a near 2-week high of 1.4301, just above key trendline resistance at 1.4280 on Tuesday. The last time it tested trendline resistance sterling was at 1.4306 but was rejected and subsequently fell nearly two cents to trendline support at 1.4090, where it then rebounded. Therefore failure to overcome previous high of 1.4306 forced cable back below 1.4280 trendline resistance and is now trading at a day's low of 1.4228. Support seen at 1.4180.
Overnight, Bank of England Governor George said that it is possible UK consumer demand will slow on its own accord and added that the timing of possible rate hikes will depend on domestic demand as well as a recovery overseas. The overnight release of UK RPIX showed a fall to 2.2% y/y in February from the previous 2.6%. This was positive for sterling, even though analysts still foresee a 25-bp rate hike by the start of summer in order to check strong consumer and housing demand.
Today's data from the UK is expected to show the claimant unemployment rate steady at 3.2% while the ILO 3-month average steady at 5.2%. The MPC minutes for the March 7 meeting are also expected to show the vote split 7-2 with a minority in favor of further rate cuts due to benign inflation data. Dealers will look to for sentiment regarding the global recovery and future interest rate hikes.
On Thursday both the European Central Bank and the Swiss National Bank are expected to keep rates unchanged, and neither are expected to have much impact on the respective currencies. However, no move by the SNB is seen 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. Yet the market would regard a rate cut as an attempt by the bank to weaken the franc through easing liquidity.
The franc has benefited across the board as safe-haven flows sparked by fears of US military action in Iraq added to recent gains. USD/CHF remained above overnight lows of 1.6580, and safely above last week's lows around 1.6480 after ending a sharp five-franc retreat that week. Upside seen capped at 1.6625 and 1.6747, the 38.2% retracement of the 1.7115-1.6517 move. Support seen at 1.6580 and 1.6480.