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No Key Data
The dollar was slightly stronger against the European majors but weaker against the yen in Asian trade. The lack of key data this week will keep traders focused on Secretary of State Colin Powell's trip to the Middle East in the coming days and the possibility of peace. Dealers are divided over optimism for Powell going to the region and the fact that developments in the region remain dollar negative. Developments in the Middle East will therefore be key to short-term trading opportunities and Middle East uncertainty will continue to weigh on the dollar in the near-term as risk aversion stores up cash on the sidelines and keeps badly needed capital from flowing to the US.
Data from the CFTC IMM report showed that speculators were net short 9257 yen contracts in the week ending on April 2nd, which means dealers were increasingly short the yen last week when they expected Japanese outflows to weaken the yen. While this is a negative for the yen, with no sign of the much-anticipated outflow of funds from Japanese investors, the yen crept higher in Tokyo and should remain strong in the short term as investors remain uncertain about the outcome of the Middle East. Last week the market was positioned for Japanese investors to start moving capital overseas in the new fiscal year. Therefore, in the absence of Japanese investment outflows to the US, the dollar should now target the key 130.90 level which marks both the 38.2% retracement of 126.32 to 133.80, as well as trendline support from the September low of 115.75. Support is seen at 131.30 and 131.10 ahead of 130.90. A break below that level should trip stop losses but be contained by support at 129.15, the 61.8% retracement of the same move. Here a base should form from where further weakness in the yen is expected.
Data from Japan today showed February core private machinery orders surged 10.8% m/m, but remained down 16.1% on an annual basis. The Japanese government says orders data confirms capital expenditure should stay weak in first half of FY 02.
European majors gave back most of Friday's gains after a weaker than expected US jobs report sent the dollar lower across the board.
EUR/USD maintained above support in the 87.70 area but gains were capped at 87.90 cents as the falling price of oil took away much of the uncertainty that had dragged the dollar lower last week. The euro failed to muster new strength after recoiling from Thursday's 2-week high of 88.57 where key resistance in the 88.40/70 region containing the recent reaction high, Fibonacci resistance and the 200-day moving average were too big an obstacle for the single currency. However, 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.
GBP/USD slipped below support at 1.4330 on Monday and fell to a low of 1.4309 after it struggled to maintain above 1.4343 on Friday, which marks the 38.2% retracement of the 6-month downtrend from 1.4828 to 1.4043. However, the downward choppy trade is still seen as a correction and is holding above the 1.4290 support. Therefore, further gains could be in store and a break of 1.4387 and the reaction high of 1.4429 would open the door for a run at 1.45. Support stands at 1.4290, 1.4250, 1.4220 and 1.420. A fall below 1.4200 would be a sign of an impending bear trend.
The Swiss franc was little changed and hovered around 1.6660 and remains troubled by previous resistance at 1.6675 as the upside appears contained at 1.670 followed by 1.6727, which marks the 61.8% retracement of the move from 1.6860-1.6511. As long as the 1.6727 resistance holds, the next move should be lower again, dealers say. But watch for a break of 1.6727 which could trigger stop loss buying of the dollar and target the previous high of 1.6860.