www.forexnews.com
At 8:30:00 AM US Jobless Claims (exp 411k, prev 438k) At 10:00:00 AM US March Leading Indicators (exp 0.3%, prev 0%) At 2:00:00 PM US April Phil Fed Survey (exp 14.2, prev 11.4) US March Fed Budget (exp -60 bln, prev -76.1 bln)
The dollar steadied at 3-month lows against the euro and above 130 yen after suffering heavy losses this week from a failed peace initiative in the Mideast and overnight comments by Fed Chairman Greenspan where he voiced concern over the strength of the recovery and the effect of oil prices on growth. His comments only added to the uncertainty that permeates the market at the moment and highlights the near-term risks facing the dollar. Therefore, international investors are likely to keep money out of the US markets until the crisis in the Middle East eases and investors feel they can trust the US again.
The dollar index is trading at 116.65, just above its 200-day moving average and down from April highs around 118.65. Confidence in a global recovery has encouraged investors to diversify out of U.S. assets and going forward this is one of the greatest threats facing the dollar because of its dependence on foreign capital inflows to support it.
EUR/USD fell to a day's low of 88.82 in London trade after an initial attempt to push through the current high of 89.14 failed. This lead to a retracement of overnight gains and the pair held well above support at 88.70/65 area. 88.70 marks the 61.8% retracement of the 90.62 to 85.63 decline and 88.65 marks the 61.8% retracement of yesterday's 87.85 to 89.10 advance. Follow up support is seen at 88.35 and 87.90. Only a move below 87.90 is seen compromising the technically bullish stance of the pair.
The fact that the euro has held above 88.70/65 is a bullish sign and bodes well for the EUR/USD in the near-term. Resistance is seen at 89.10, 89.50 and 89.90/91.00 and this year's high of 90.63. The real test to its strength will come in the US session where the market anticipates more positive US data. The most important will be the Philadelphia Fed Survey, which is expected to show a rise to 14.2 in April from 11.4. A rebound in the Philly survey would bode well for the ISM survey due on May 1.
A marked improvement would also highlight the fact that Euroarea data continues to underperform that of the US. Eurozone February industrial output rose less than expected today at 0.2% vs forecasts for 0.4%. The annual rate is down 3.3% from a year ago. Next week, traders will focus on the key German Ifo survey which is expected to track the ZEW survey lower.
The dollar slipped below support at 130.50 to hit a session low of 130.32 but bounced back on concerns that the MoF is serious about defending the 130.00 level after a rash of comments last week kept it above that level. Earlier comments from Japanese official Kuroda that the yen should not strengthen against the dollar reaffirmed the notion that Japan would like to contain the yen in the 130-135 range against the dollar. However, this does not mean further losses are impossible, just that Japanese officials have voiced their discontent over a stronger yen.
If the dollar continues to come under pressure across the board, USD/JPY could ultimately target 129.65 and 129.20, which marks the 61.8% retracement of the larger 126.32 to 133.82 advance as well as trendline support. But any yen strength should be contained around 129.50-130.00, where both technical factors and the Japanese government are likely to argue for a weaker yen.
In any case, the retracement of Tuesday's gains in USD/JPY from S&P's downgrade followed by further losses shows two things: (1) the overall momentum is to the downside (2) the yen's initial reaction to the S&P was just a knee-jerk upwards and its coming off showed that the market has fully priced in credit rating downgrades, including more to come. GBP/USD fell to a day's low of 1.4442 after failing to break earlier highs around 1.4475. Like the euro, sterling gave back some of its overnight gains but has maintained above key support at 1.4400 which bodes well for another move higher. Support at 1.4400 marks the 61.8% retracement of the 1.4360 to 1.4470 advance. It also marks the 38.2% retracement of the bigger 1.4286 to 1.4470 advance, making it a probable downside target and an area from which bulls would wish to rebuild longs. Follow up support is seen at 1.4355 which marks the 61.8% retracement of the bigger advance as well as trendline support, which makes it a very strong support level. Resistance is seen at 1.4470, 1.4495 and 1.4515 which marks the reaction high hit on January 14. The movements in EUR/USD should be closely watched as well for direction in this pair.