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At 2:00:00 AM Germany March WPI m/m (exp 0.7%, prev 0.2%) Germany March WPI y/y (exp -0.1%, prev -0.5%) At 2:45:00 AM France Feb Trade Balance (exp n/f, prev 1.3 bln) At 4:30:00 AM UK March Output m/m (exp 0.3%, prev 0.1%) UK March Input m/m (exp 2.2%, prev 0.2%) UK March Input y/y (exp -3.3%, prev -7.2%) UK March output m/m x fdtp nsa (exp n/f, prev 0.1%) UK March output y/y x fdtp nsa (exp n/f, prev 0.2%) UK March Output y/y (exp -0.1%, prev -0.3%)
The dollar fell against the euro and yen in Monday morning trade, hitting a low of 88.18 cents and 131.62 yen. While the movement in EUR/USD generally stayed within its current 87.60 to 88.40 range, the dollar's sharp selloff from a day's high of 132.40 was an important technical signal. 133.40 marks the 61.8% retracement of the 133.82-130.16 decline and the rejection at this level implies that 132.40 should present a formidable upside barrier in the near term after a sharp rally from 130.16. Japanese Finance Ministry officials have been talking down the yen since last week's rise to 130.16 against the dollar. But the real motivating factor for dealers to increase their long USD/JPY positions will come when evidence of Japanese dollar demand resurfaces.
USD/JPY should make a strong advance once dealers see that Japanese investors are starting to put more money back abroad. This highly anticipated shift of funds has both encouraged traders to short the yen, and frustrated traders as they wait. Last week, speculators were net short 10,751dollar/yen contracts in the week ending on April 9th. This was the largest short positioning since March 5. But in the meantime, as unrest in the Middle East still captures the market's attention, the dollar should remain on the defensive.
USD/JPY is now looking to retest earlier lows around 131.55 reached in Tokyo that level marks the 38.2% retracement of the 133.82-130.16 decline and must hold in order to stave off further losses. A break below this level would target 131.40, which can only tentatively be called trendline support, and a break support would target key support around 131.00/130.95. Only a break of that level would then target the 130.16 low. However, if USD/JPY were to reach 130.16, it is very likely that Japanese officials would voice their concern over excessive yen strength not matching the weak economic fundamentals. These comments put a floor under this month's decline from 133.82, and today's sharp decline should be seen as corrective from the sharp rise from 130.16. Moreover, any further USD/JPY decline should be contained by support at 129.18, the 61.8% retracement of the larger 126.32-133.82 advance.
Weighing on the yen was an FSA report noting that Japanese banks would have to increase their loan-loss charges by another 1.9 trillion yen or $14.46 billion to deal with the bad debts in the last fiscal year. The FSA downgraded 71 corporate borrowers out of 149 companies examined by its special inspection team while more than 20% were estimated to be in danger of bankruptcy of virtually bankrupt The FSA announced the same day that bad loans at major banks increased by 4.7 trillion yen as a result of its special inspections. After the FSA released the results of its special inspections of corporate borrowers Friday, credit-rating agency S&P announced that rise in bad loans at major banks was smaller than expected, and that under current condition it is hard to restore the credibility of Japanese banks. Daiwa Institute of Research estimated more than 6 trln yen this fiscal year in banks bad loses The FSA's minister Yanagisawa expressed hope that banks will return to normal in fiscal 2004.
EUR/USD rose to a day's high of 88.16 which lies above trendline resistance at 88.00. Good support is seen around 87.90/88.00 level and this should form a base for a move towards last week's high of 88.44. From a technical perspective, as long as support at 87.75/70 holds, the next move should be higher. This level marks the 61.8% retracement of the one-cent rise from 87.34 to 88.44. However, looking ahead, heavy resistance is seen in the 87.50/80 region, which will be tough to break as the 200-day moving average lies at 87.84. This will be an obvious area for short-term speculators to take profits. Meanwhile, only a move through support at 87.75, 87.50 and ultimately 87.00 would change the bullish outlook for the euro and provoke a bout of selling due to the large amount of long positioning still built up in the market.
IMM currency futures data released last Friday showed a slight decrease in net long positions after haven risen steadily over the past two and a half months. The CFCT IMM report showed that euro futures traders had cut their long position to 19,441 contracts in the week ended on April 9 from 26,158 contracts the previous week. Recall, that April 2nd report revealed the largest net long position for the euro since September 25, 2001.
GBP/USD continued to hover around 1.4360 after failing to maintain above 1.44 last week. A slip below 1.4360/50 should retest previous lows around 1.4335 but below that support at 1.4285 should hold. Sterling looked weak after slipping from a one-week high of 1.4400, but the upward trend remains on track and GBP/USD could hit 1.45 before becoming heavy again. Only a fall below 1.4200 would be a sign that the bear had taken back hold over the pair.