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At 3:30:00 AM UK March CIPS UK services index (exp 52.8, prev 52.1) At 5:00:00 AM E-12 Jan Retail Sales y/y (exp 0.6%, prev 0.4%) E-12 Jan Ind. Prod m/m (exp 0.2%, prev 0.8%) E-12 Jan Ind prod y/y (exp -2.3%, prev -4.1%) E-12 Jan Retail Sales m/m (exp 0.5%, prev -0.6%)
The yen rose sharply in Asian trade on Thursday, defying an initial setback to 133.15 against the dollar, as it snapped back nearly 100 pips to a high of 132.32. Dealers saw it as an aberration in a trendless market and the Japanese currency found strong selling pressure around the 132 mark.
Against the yen, the dollar was lifted on overnight comments made by former Bank of Japan director Nakagawa that the Japanese government "wants" the dollar to trade around 140 yen to ease deflationary pressures on the economy. Today, in late Asian trade, Bank of Japan Governor Hayami said he did not think the yen was particularly weak against either the dollar or euro, indicating they could continue to rise against the yen without fear of the central bank's disapproval.
But, the absence of heavy Japanese buying of overseas assets at the start of the new business year this week disappointed traders after selling the yen to a low of 133.80 against the dollar this week. With no pent up demand for foreign assets traders pared yen short positions this week and if the Japanese continue to hold off, it should provide a pause in the yen's weakness. However, when the market returns to risk seeking, those funds are expected to start flowing abroad and weaken the yen.
USD/JPY fell to a day's low of 132.32 after briefly rising to a day's peak at 133.15 then falling sharply thereafter. Be advised that if a top was indeed formed at 133.80, then a fall back to 130.93, the 38.2% retracement of the 126.32 to 133.80 move could be a likely scenario before the yen comes under increasing pressure again. Resistance is seen at 133.45 followed by 133.80, 134.50 and the key 135 level. Support is seen at 132.20 followed by 131.80 and 130.93.
Upcoming earnings announcements and ongoing conflict in the Middle East continue to weigh on Wall Street as the Dow plunged 115 points to 10198 and NASDAQ shed 20 points to 1784. Although there continue to be many good reasons to be bullish on the US and the dollar, the market has shifted back to a risk averse mode and in this particular situation, the dollar is on the defensive because expectations of superior performance have already been built into the price. Therefore, the dollar could come under increased pressure if the situation in Israel deteriorates further and foreigners are reluctant to invest in the US amid the uncertain environment and rising oil prices.
Meanwhile, the European majors were generally listless against the dollar, hovering near their New York closing price overnight. EUR/USD held to around 88.00/20 while sterling traded in the 1.4345/65 range. Today's focus in FX markets will be on the European and UK central bank meetings, even though no rate cuts are expected from either bank. Both the ECB and BoE are expected to keep interest rates on hold at 3.25% and 4.0% respectively, but raise them in the near future, possibly as early as this summer. The decision is not expected to sway either currency, but traders will be more interested in what the central banks say in regard to the current spike in oil prices and how that will affect their decision to combat inflationary pressures.
EUR/USD traded rangebound between support at 88.00 and resistance at 88.20. Bias still seen to the upside, but the market is stalling amid directionless trade in uncertain conditions. Falling momentum expected to bottom today with a mover higher by Friday seen likely. The euro rose to a day's high of 88.12 and continues to hold above 87.72, the 38.2% retracement of the latest rise from 86.96 to 88.18. If the 61.8% retracement at 87.43 holds, the next move should be higher, but the euro will have to take out the previous reaction high of 88.67 to open the way for a run at this year's high of 90.63.
GBP/USD rose from an overnight low of 1.4335 after giving back nearly all of Monday's sharp 1-2/3 cent gain to a 2-1/2 month high of 1.4429. Cable has broken above key trendline resistance at 1.4295 and closed above it on three consecutive days. Therefore, dealers warn that further gains could be in store but sterling will have to maintain above 1.4387, the 61.8% retracement of the move from 1.3678 to 1.4827 to open the door for a run at 1.45. Today's price action kept cable below 1.4387 at a day's high of 1.4379. Follow up resistance is eyed at 1.4465, 1.450 and 1.4540. Support stands at 1.4250, 1.4220 and 1.420. Weighing on the pound's chances against the dollar is the new weakness seen against euro. EUR/GBP rose to a day's high of 61.46, just below the 38.2% retracement of the last month's 2.2 pence decline.
Today's data from Europe is expected to show a continued, but gradual recovery. However, the news is not expected to have much market impact, unless the data surprise much more on the upside than currently thought. UK services PMI is seen edging to 52.8 from 52.1 last month. The services PMI from the E-12 is also expected to rise to 52.5 in March from 51.5, indicating the third consecutive monthly rise. Euroarea industrial production also likely rose again this month, bringing the yearly rate up to -2.3% from 4.1% last month