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The US tough stance on Israel has calmed the markets and the dollar traded steady in Tokyo with little market moving comments or data to invoke trading. Oil prices, gold and the dollar all steadied in Asia as dealers look to see what comes of President Bush's tough words. But while the war and embargo premium attached to the oil price has fallen, the dollar still remains on the defensive as uncertainty in the market prevails.
USD/JPY held in a tight range around 132.17 to 132.43. The yen received a mild boost today after the Japanese diffusion index of leading economic indicators for February maintained in positive territory for the second consecutive month, at 66.7 and signaled that the economy will improve in the coming month. But the coincident index remained in contraction at 33.3, the 14th straight month below 50. Japan's recession-prone economy is experiencing a boost from its export-led manufacturers and based on that the government last month upgraded its economic assessment for the first time since June 2000, citing improvements in exports. The Bank of Japan followed suit, and upgraded its official view a week later. But as the Bank of Japan's Tankan survey showed, there is little else to cheer for.
Fundamentally, everything in Japan points to a weaker yen, but someone forgot to tell the Japanese that. Instead, individuals and institutions have held onto their savings amid the uncertain economic environment. Risk aversion is keeping the yen alive by virtue of the fact that dealers had to cover their short-yen positions in the past several sessions as uncertainty about the situation in the Middle East curbed investment outflows from Japan that had been expected after the end of the fiscal year. Nonetheless, once this factor has been dealt with and traders return their focus to economic fundamentals, the yen is likely to weaken considerably.
USD/JPY rose only to a day's high of 132.43 today in early Asian trade after suffering a drop below the 132.25 S/R mark and bottoming at 131.60 overnight. Unfortunately, 132.43 marks the 38.2% retracement of the move from 133.80 to 131.60 and has so far contained the upside potential of the dollar. This keeps USD/JPY in a bearish bias and only a move above 132.96, the 61.8% retracement of the same move would paint a bullish picture. A break below 132 is seen targeting the area of congestion around 131.20 to 130.80. A likely target could be a fall back to 130.93, the 38.2% retracement of the 126.32 to 133.80 move before the yen comes under increasing pressure again.
Markets were also steady in Asian trade as dealers await key US payrolls data due at 8:30 AM. March payrolls are expected to rise again this month after turning positive in February, but the unemployment rate is expected to come back up to 5.6% after the surprise fall to 5.5% last month. Overnight data from the US showed initial jobless claims rose unexpectedly last week to 460k from the previous revised 396k, which was also a surprise. This will give markets an indication for tomorrow's key Labor market report which is expected to show hours worked and wages rise slightly but the payroll fall back to 41k jobs after a 66k rise in February.
No key data from the Eurozone is expected today.
EUR/USD fell nearly one cent to an overnight low of 87.63 after hitting a 2-week high of 88.57 in US trade. A sense of relief over the Middle East took away much of the uncertainty that had dragged the dollar lower this week. But the euro was also key resistance in the 88.40/70 region is also containing the pair, where the recent reaction high, Fibonacci resistance and the 200-day moving average were too big an obstacle for the single currency. The last time the euro tried to break this 2 weeks ago, it failed and fell back to 86.98. But momentum may pick up by Friday and as long as the euro continues to hold above 87.50/70, the bias is still seen to the upside. Key resistance for the euro is at the 88.70 level which marks the 61.8% retracement resistance of the decline from the year's high of 90.63 to the 85.63 move, as well as the 200-day moving average.
GBP/USD fell to a day's low of 1.4332 but sterling has maintained above key trendline resistance at 1.4290 and closed above it on four consecutive days. Therefore, further gains could be in store if sterling remains above 1.4335 lows. A break of 1.4387 and reaction high of 1.4429 would open the door for a run at 1.45. Support stands at 1.4335, 1.4250, 1.4220 and 1.420. EUR/GBP fell back from 61.46, which marks the 38.2% retracement of the last month's 2.2 pence decline.
The Swiss franc tumbled by 1-1/2 centimes from a 3-week high of 1.6519 against the recovering dollar as market jitters over the conflict between Israel and Palestine were soothed by President Bush's announcement of Secretary of State Powell's trip there next week to negotiate peace. Furthermore, traders were wary that the Swiss Central Bank might jawbone or intervene to prevent excessive buying of the safe-haven currency. Upside capped at 1.6675, 1.670 and 1.6730. Dealers say that as long as the 1.6730 resistance holds, the next big move should be lower.