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At 2:45:00 AM France March Unemployment (exp 9%, prev 9%) At 4:30:00 AM UK March M4 m/m final (exp n/f, prev n/a) UK March M4 y/y final (exp n/f, prev n/a) UK March Consumer Credit (exp 1.6 mln, prev 1.850 mln) At 6:00:00 AM E-12 March Unemployment (exp 8.4%, prev 8.4%) E-12 Feb Retail Sales m/m (exp -0.2%, prev 0.6%) E-12 Feb Retail Sales y/y (exp 0.8%, prev 0.7%) E-12 April HICP m/m flash est. (exp 0.3%, prev 0.6%) E-12 April HICP y/y flash est. (exp 2.2%, prev 2.5%)
The dollar gave back earlier gains against the yen in Asian and held near overnight lows against the euro and Swiss franc as sentiment remains bearish. Golden Week holidays kept the Tokyo market quiet again and after a strong rally against the dollar in the past sessions. The market continues to trade in a consolidation phase and could correct if key technical barriers cannot be overcome. EUR/USD remains blocked by key resistance around 90.40 while 127.75 yen, 1.4635 against the pound and 1.6180 against the Swiss franc, have also held back further dollar losses.
Investor sentiment is still the dollar's primary concern as the poor performance of stocks and weak corporate profits are causing many to question whether capital flows into US will be sufficient to counterbalance a massive current account deficit, now running above 4% of GDP at $417.4 billion. On the other hand, dealers are not yet convinced the euro has the economic fundamentals to justify a continued rise. Therefore, it appears the market is nearing a transition period or pivot point where investor sentiment will either turn in favor of the dollar again, or turn worse leading it to trigger stop loss sales exacerbating the recent downtrend.
In Tokyo today, the Bank of Japan kept its monetary policy unchanged by unanimous decision and maintained its current account target of 10-15 trln yen. The Bank said it would provide funds regardless of the target if risks of financial instability arose. The decision had no impact on the market, which expected the decision.
The BoJ policy board core outlook for FY 02/03 stated: GDP ranged from -0.5% to +0.1%. CPI from -1.0% to -0.8%. Economy to stop worsening, but sustained recovery won't gain momentum. Sees improvement in CapEx, profits this FY and next from gains in exports and output. Says prices to continue falling given downward pressure from demand, supply sides. Personal consumption to remain weak. Cites interest rates, land prices as potential risk factors.
USD/JPY rose to a day's high of 128.34, near the first major resistance level of 128.40 (61.8% of 128.87 to 127.63) after senior Japanese FinMin official Mizoguchi said today the current rise in the yen was not appropriate and that there were no conditions to warrant a rise over the medium term. Mizoguchi drew the distinction between undesirable short-term fluctuations in the yen (higher) vs. the unlikely outcome of a sustained rise in the yen over the coming months.
While this encouraged dealers to take profits from the recent rise in JPY, the dollar promptly fell back below 128.00, meaning traders should be prepared for a break of the 127.86 reaction low which could fuel another selloff below yesterday's 7-wekk low of 127.63. To avoid further losses, USD/JPY needs to overcome resistance at 128.40, followed by 128.87 reaction high. Only a break there would discourage yen bulls. EUR/USD remains contained by key resistance around 90.40 (61.8% of 93.35 to 85.63) after briefly hitting a new 3-1/2 month high of 90.45 overnight. A top around 90.40/45 appears to have developed constraining the short term upside, but a retracement here has held above 90.10 (38.2% of 89.60 to 90.45). Further dollar weakness at this level is expected because momentum is with the bears. But only a move above 90.40 would put the bull trend fully back on firm footing, clearing the way for a move through 90.50 and the year's high of 90.63. A break of 89.90 would damage the bull.
Meanwhile, there is talk that key downtrend resistance at 91.00/10 could prove a formidable barrier to further gains. It is important to note that the market is very aware of this level so it may try to break out, which may just prove to be a false break above then the market could actually reverse. The historical case for this particular consolidation pattern (a symmetrical triangle) warns of such false breakouts and shows that most trends continue in the direction of the prior mega trend (which is down in EUR/USD).
Other reasons to remain vigilant about downtrend resistance at 91.05/10 are (1) Highest net long position in weekly IMM euro futures ever at 29,623; (2) In each of the last 3 occasions in which EUR/USD breached above the 200 day MA, the pair went on to rally by an average of 2.0% before heading down again; (3) The 90.50-90.80 region has often acted as a resistance; January 2, December 17, April 4 and 20, Aug 25 2000; (4) Each time the euro makes it above the key 90-cent threshold, market sentiment shifts the burden from the dollar to the euro.
GBP/USD fell to a day's low of 1.4568 after failing to overcome key trendline resistance at 1.4635 overnight. Key Fibonacci supports (near and long term) are seen in the 1.4550/65 area and a break below would be the first indication of a reversal unfolding. However, a break of 1.4635 is seen targeting 1.4710, 1.4750 and 1.4775.
USD/CHF also found support above 1.6180, which marks a key long-term trendline support. Upside is seen limited at 1.6250 (38.2% of 1.6345 to 1.6175), 1.6280 (61.8% of 1.6345 to 1.6175) and 1.6345 (reaction high). A move above 1.6345 would be a good signal for the dollar whereas a close below 1.6180 would be a bearish signal to traders and further weigh on the dollar against the other EuroFX.