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At 4:00:00 AM Germany March IFO business climate (exp 90.3, prev 88.7) At 6:00:00 AM E-12 Jan Current Account (ECB) (exp n/f, prev 2.9 bln)
The yen recouped all of Monday's losses in Tokyo trade as it gained from profit taking after falling over 7 yen in two weeks against the dollar. The Japanese unit rose half a yen to resistance at 132.75 and 116.40 against the dollar and euro. But further losses in the Nikkei kept the yen under pressure as the easing of foreign demand for Japanese shares subsides along with expectations that Japanese investors would move their money back abroad next week after repatriating record amounts over the past couple months. This can only be seen as a negative for the yen which fell to fresh 3-week lows of 133.43 and 117.08 against the dollar and euro overnight, and today's gains appear more like profit taking than anything else.
USD/JPY gains over the past 3 weeks from a 126.32 low have been impressive and only a move through the 131.20 support area now would indicate a downward reversal. Prior support stands at 132.70 and 131.80 which should offer pockets of support for the dollar. Upside seen capped at 133.50 and 134.98.
IMM futures data reported that speculators were net sellers of the yen by 1,127 yen contracts last week after breaking a 9-week streak in the previous week where they were net buyers by 6,898 contracts. Moreover, market pessimism about Japan's economic conditions is likely to exacerbate the yen's likely tumble, particularly ahead of the April 1 release of the Bank of Japan Tankan survey that is expected to show slight improvement but reflect Japan's dismal economic state.
The euro hovered in a tight band around 87.70 cents, unable to gain from a late sell-off on Wall Street except to avoid falling below support at 87.50. Dealers had little market moving news to provoke trading and will likely wait to today's German Ifo survey for direction in the euro. Data from the US later in the week is expected to be supportive of the dollar, but trade is likely to diminish this week as many Japanese investors sit on the sidelines ahead of the new fiscal year next week, while the Easter holidays will keep the European away from their desks for much of the week and US markets are closed on Friday.
EUR/USD held above Monday's open at 87.65 and has managed to maintain above 87.50 and key support at 87.10 which would turn sentiment bearish again for the single currency. But disappointing price action last week contained the euro under its 200-day moving average at 88.62, which provided enough resistance to push the single currency lower. The break below congestion at 87.60/80 also may have marked a top at last week's highs around 88.60 resistance, which would imply the market may now focus on the downside. Support seen at 87.50, 87.10 and 86.80, 86.30 and key support at 86.10. Resistance seen at 87.70 and 88.20 and 88.60.
The euro remained quiet as FX markets await the key German Ifo survey at 4:00 AM to assess if the euro-zone recovery is catching up on that in the U.S. The average forecast is for an improvement to 90.3 in March from 88.7. But the market is still unconvinced of the euro's ability to stage a long-term rally as the euro hasn't been able to make gains on its own strength.
Moreover, with rising oil prices now worrying dealers about inflationary pressures in the euro area, the single currency could again come under pressure due to the markets expectations for interest rate hikes there after only a modest easing cycle last year. Rises in the price of oil also fuel more demand for dollars which is why when oil has risen in recent years, the dollar has gained against most European currencies.
In addition, IMM futures data on Friday showed net long euro positions had grown to the 21,000 level, their largest in over five months which could lead to a further protracted decline. The inability of price action to keep up with the euro after it failed to break key trendline resistance at 88.80 last week could force traders to unwind some of those long positions or sell due to stop loss orders being triggered.
GBP/USD gains remained capped at an overnight high of 1.4280 after bouncing from support at 1.4230. Sterling remained heavy after failing to break key trendline resistance at 1.4320 last Thursday and the downside is now seen targeted. Support holds at 1.4220, 1.4205, 1.4175. A break of 1.4175, which marks the 61.8% retracement of the 1.4085 to 1.4323 move, would call upon support at 1.4085. Resistance is seen at 1.4285 and the upside should remain contained by trendline resistance at 1.4310 followed by a reaction high of 1.4323.
USD/CHF held above support at 1.6630 but was unmoved by overnight comments from Swiss National Bank President Roth who acknowledged that the Swiss franc's exchange rate is a factor in its policy assessment, and that the central bank is poised to act in times of undesired volatility and sharp rises in the Swiss franc. He reiterated, however, that price stability is the SNB's main goal. Support stands at 1.660, 1.6560 and 1.6525. Upside capped 1.670, 1.6735 and 1.6760.