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Despite today's rally in US equities, the dollar fell across-the-board as investors pulled out of US Treasuries since the US economy is exhibiting increasing signs of a turnaround. The NBER's Zarnowitz said today that it is possible the US economy is already in recovery, but added that it may be months before the NBER panel rules on a turning point for the economy. The greenback was further undermined by Morgan Stanley's decision to shift its allocation in US equities to underweight because of high valuations and accounting-related concerns, to overweight in European stocks and remaining underweight in Japan.
USD/JPY hovered in a tight range around its 2-week low of 131.85. The yen extended its rally for the fourth straight session, boosted by a 5.9% or 638 point surge in the Nikkei to a 6-month high of 11,450 along with yen repatriation ahead of the fiscal year end on March 31. Investors were encouraged by signs that large Japanese banks, such as Mizuho that let construction company Sato Kogyo go bankrupt, were taking steps to address the issue of non-performing loans. Moreover, the Nikkei has been lifted by the government's announcement of more stringent requirements on short-selling stocks last week. Furthermore, investors welcomed news that the Bank of Japan had increased its monetary base by 27.5% in February, in its largest rise since the oil crisis in 1974, reflective of Japan's efforts to address its ailing economy. USD/JPY support is seen at 132.0, 131.75 and 131.50. Resistance is viewed at 134.0, 134.40 and 134.80.
EUR/USD rose slightly more than three-fourth cents to a 1-week high of 87.13 on dollar weakness, rather than on inherent strength even though the Eurozone business climate indicator climbed to its highest in 5 months to -0.86 in February suggesting an economic recovery is occurring. The EU's Rato noted the presence of signs of an economic pick up in the US and Europe, and thus he expects a recovery to consolidate over the next few months. He praised officials for making correct policy responses in reaction to last year's economic crises. Meanwhile, the EU's Solbes also expressed his anticipation for a gradual recovery in the first half of this year, since he believed the Eurozone economy bottomed last quarter. Solbes projected the European economies would post average growth rate of 1.5% in 2002. Upside capped at 87.0, 87.40 and 87.80. Support stands at 86.30, backed by the 86.0-cent figure, and 85.50.
GBP/USD climbed over three-fourth cents to a 1-week high of 1.4240, supported by the Confederation of British Industry survey that posted its first positive reading in business confidence in the services sector in one year. For more direction, traders await tomorrow's purchasing managers survey for services and Thursday's Bank of England monetary policy decision, even though economists do not expect an interest rate change. Resistance is eyed at 1.4230, 1.4280 and 1.430. Support holds at 1.4130, 1.410 and 1.4075.
USD/CHF slid more than 1-1/2 centimes to a 2-session low of 1.6961. Support is seen at 1.6960, 1.6930 and 1.690. A break below the 1.69 franc figure would call on support at the 200-day moving average of 1.6864. Upside capped at 1.710, 1.7140 and 1.7175.
US stocks soared on hope that the US economy is on the verge of recovery based on recent affirmative economic data, as well as on an upgrade of General Motors and a positive earnings outlook from Manugistics. The Dow skyrocketed 2.1% or 217 points to 10586 and NASDAQ rose 3.1% or 56 points to 1859.
Tomorrow's release of the non-manufacturing ISM survey is expected to break above the key 50-level to 51.0 in February from the previous 49.6, thereby indicating growth in the services sector. While this is a positive confirmation for the improvement in the US economy, reaction in FX markets is likely to be muted ahead of Friday's key labor market report.
Major data due from the US this week consist of factory orders, jobless claims, productivity, consumer credit, and the labor market report. Key Eurozone indicators include the Euroarea Services PMI, Euroarea unemployment, German Services PMI, French Services PMI, Italian Services PMI, Spanish industrial production, German manufacturing orders, German unemployment, ECB rate decision, Italian GDP and Dutch CPI. The main data releases from the UK are the purchasing managers survey for services, the CBI survey of distributive trades, the NTC/FRES report on jobs, housing starts and the Bank of England's rate decision. Highlights from Japan comprise the MoF corporate survey, trade balance, indices of business conditions, GDP, money supply and wholesale prices.