No Key Data
The dollar was lower against the European majors, but higher against the yen in thin Asian trading on Monday morning. USD rose to a one-week high of 133.38, but gains were capped by selling ahead of last week's high around 133.45. Meanwhile, the Swiss franc was sharply higher in Tokyo as this weekend's events in the Middle East created more uncertainty in the region. USD/CHF fell over half a centime to a day's low of 1.6745, which helped EUR/USD stave off further losses and rise to a day's high of 87.45.
The yen fell across the board today after the Bank of Japan's March Tankan survey of big businesses remained unchanged at -38 and the outlook for June's survey is only expected to improve to -27, hardly denting the pessimism Japanese businesses feel over the state of the economy. This spoiled hopes of an improvement and markets were also surprised by the continuing decline in small companies diffusion index, which experienced a further contraction in March and expects no pickup in demand on the horizon.
USD/JPY rose to a session high of 133.38 in light Asian trade. Dealers say speculators are keen to clear last week's highs around 133.45 and trip stop-loss buying of dollars for an eventual return to the year's peaks up at 135.20. But selling pressure ahead of 133.45 kept further gains on hold. Resistance is seen at 133.45 followed by 134.10, 134.50 and the key 135 level. Support is seen at 132.20 followed by 131.80
The yen is likely to depreciate this week againt the dollar as the data from the CFTC IMM report showed that speculators were net short 4360 yen positions against the dollar, indicating that traders were beginning to rebuild short positions after briefly going long two weeks ago and driving the yen to a high of 126.32.
The Swiss franc reversed Friday's losses and rose sharply today in reaction to the escalating crisis in the Middle East. USD/CHF fell back to support at 1.6745, but if that were to give way, support at 1.6650, the 31.8% retracement of the move 1.8237 to 1.5665, is expected to contain its losses. The franc's rise in times of crisis has presented the Swiss National Bank with a dilemma after the Bank unexpectedly lowered its repo rate on Wednesday in an effort to weaken their currency. Moreover, an escalation of violence in the Middle East could call the Swiss National Bank's bluff because the natural demand for CHF in times of crisis could prove stronger than the SNB's lowering of its repo rate. But the chances of going to war with Iraq this year appear slim and the franc should come under pressure again as investors realize this, and ease pressure on the central bank to act. This would please the SNB because it does not want to lower its LIBOR band because of the inflationary expectations that would bring. Currently the SNB is targeting 1.75% in its 1.25-2.25% range.
The closely watched EUR/CHF rate has proved most difficult for the SNB and today's fall to a day's low of 1.4637 is worrisome for the Bank as the euro continues to struggle to maintain above key technical resistance at 1.4660. A slide back towards 1.46 would force the Swiss National Bank to show it is serious about defending their line in the sand, which would likely be followed by more of the same comments from the SNB about its desire for a weaker franc.
EUR/USD breached resistance at 87.40 and rose to a day's high of 87.45. A sustained break of 87.40/50 resistance would target 87.80 in front of key trendline resistance at 88.40. However, the euro is not expected to make much headway against the dollar after last week's impressive US data and the thin trading conditions where most markets in Europe are on holiday today. Wall Street will be open on Monday and US trading will reinvigorate the FX market after a possibly lackluster day in Europe.
Data from CFTC IMM report showed that speculators were net long 23,293 euro contracts in the period of March 20-26. But given that the euro failed in its attempt last week to break key trendline resistance at 88.60 on March 21, the fact that a large jump in speculative long positions coincided with failure to sustain a move higher bodes poorly for the euro. This was a significant addition to the previous week's robust long positions and indicates that the market is again approaching levels where failure to perform could result in a paring of long positions and put the euro under renewed pressure.
Monday, US markets will return with the release of the key ISM survey (formerly NAPM) on manufacturing expected at 54.5 in February from 54.7. The PMI manufacturing data from the UK and Eurozone follow on Tuesday. In the US, factory orders are due on Tuesday at 10 AM seen to rise by 1.0% in Feb from1.6%. On Wednesday, US ISM services is seen slipping to 57 in Feb from 58.7. On Thursday, jobless claims are expected to slip back to 380K from 394K. The indicator of the week is due on Friday at 8:30 AM, when March non-farm payrolls are expected to edge back to 40K (some figures expect 20K) from 66K, while the unemployment rate is seen up to 5.6% from 5.5%. Both the ECB and the BoE are expected to keep interest rates unchanged when they are set to announce their policy decisions on Thursday, but markets will scrutinize the ECB's post-meeting press conference. There will also be a flurry of speeches by the Fed throughout the week (Chicago Fed's Moscow on Wed, Richmond's Broaddus, NY McDonough, ST Louis' Poole and Kansas City's Hoenig on Thur).