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At 3:55:00 AM Germany Feb services index (exp 50, prev 49.6) At 4:00:00 AM E-12 Feb Services Index (exp 51.8, prev 51) At 4:30:00 AM UK Feb CIPS services index (exp 52.1, prev 51.4) At 6:00:00 AM E-12 Feb Business Climate Index (exp n/f, prev 1) E-12 Jan Unemployment (exp 8.6%, prev 8.5%)
The dollar was little changed in Tokyo trade after giving up overnight gains against the European majors and falling to around 131.80 yen. JPY held near 2-week highs around 132 against the dollar after soaring Monday morning on the back of a 5.9% rise in the Nikkei to a 6-month high of 11,450. The rally caught many investors by surprise and added to Friday's corrective gains after USD/JPY was rejected at the 135-resistance barrier.
The Nikkei cooled off today but has risen more than 10 percent since the government announced tighter restrictions on the short-selling of stocks as part of an anti-deflation package last Wednesday. Investors have been scrambling to buy back shares ahead of Wednesday's introduction of tighter rules on short-selling. More importantly the Nikkei has risen 21% since its 18-year lows in February. The turnaround gives Japan's capital weak banks a needed (if artificial or temporary) boost ahead of mark to market fiscal year end on March 31.
Were USD/JPY to break key support at 132.00/131.80 it would have a bearish implication for the pair and would open up a downside target of 130.45. But downward momentum is expected to have bottomed on Monday, which could lend support to the pair above the key 132.00/131.80 area. Upside capped at 133.0, 133.50 and 133.70, 134.00/10, 134.70/85 and strong resistance at 135.15. Support holds at 132.20 and 131.80.
Despite USD losses across the board on Monday, US stocks soared on hope that the US economy is on the verge of recovery based on recent affirmative economic data. The Dow skyrocketed 2.1% or 217 points to 10586 and NASDAQ rose 3.1% or 56 points to 1859. Nevertheless, European bourses are also expected to open higher today after Wall Street's gains and reports that Morgan Stanley raised its recommendation on European shares to overweight from neutral.
Therefore, dealers will look to see what today's services PMI data says in the Eurozone, UK and US. Both European figures are expected to show modest gains after breaking back above the 50 mark into expansion in January. US 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 Thursday's monetary policy events and Friday's key US labor market report.
EUR/USD held close to a 1-week high of 87.13, but failed to overcome key resistance in the 87.15/20 area. On Monday, the pair gave up earlier gains and fell back towards last week's 3-week low of 86.25. Despite the bounce higher, traders are not encouraged by Eurozone prospects and sentiment is again turning bearish enough to target a move through 86.30/15 on its way to its 6-month low of 85.63. Support is seen at 86.60, 86.30, 86.15, and 85.60. Resistance is viewed at 87.10, and 87.85.
Meanwhile, the focus this week will be the BoE and ECB which both meet on Thursday this week. Stronger than expected E12 PMI data last week and a further gain in consumer confidence are likely to reinforce the ECB's resolve to keeps rates unchanged this week.
The BoE is also likely to keep rates unchanged after UK February manufacturing PMI rose unexpectedly above the 50-mark last Friday indicating manufacturing has recovered from yearlong contraction. However, sterling is likely to remain weakened by EMU expectations, and because of the fact that BoE Governor George again tried to talk down the sterling strength. Moreover, the strong performance of US stocks on Friday is likely to underpin USD as investors switch back into risk seeking mode. European majors should suffer from this shift as the Swiss franc loses its safe haven luster and sterling loses investors seeking safety in the FTSE.
GBP/USD held above support at 1.4220 after failing to break resistance near a 1-week high of 1.4240 overnight. This was also where it met resistance on Friday and subsequently fell back Monday's low of 1.4159, just above support seen at 1.4150. Resistance is eyed at 1.4230, 1.4280 and 1.430. Support holds at 1.4180 and 1.4130. A break of 1.4110 would put 1.4045 under pressure and be seen as a bearish signal.
USD/CHF rose to a day's high of 1.70, up from overnight lows 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.