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The major focus for the week ahead will be the Federal Reserve meeting on Tuesday, from which the dollar and the equity markets will likely take their direction. The currency rallied earlier last week on hopes of a rate cut as early as this upcoming meeting, but remained rangebound over uncertainties of the Fed's decision, as well as the looming deadline for US companies to certify the accuracy of their earnings reports by this Wednesday. Despite the impending deadline, the Dow Jones was able to end the week higher, rallying for four consecutive days and gaining nearly 700 points in the process. The gains on Wall Street helped the Nikkei clear the psychologically important 10,000-level for the first time since July 30th. The Tokyo index ended the week just slightly below, at 9,999.79.
Trading is expected to be light in Tokyo as many will be away from the market this week for the Bon summer holidays. According to Japan's Cabinet Office, business confidence showed a dramatic improvement in Q2 due to a pickup in exports and production. The Business Survey Index rose 22 points to 14 for the quarter, but remained mired in negative territory for the 6th consecutive quarter. On Sunday, Economic and fiscal policy minister, Heizo Takenaka proposed a tax cut of more than 1 trillion yen for fiscal 2003 be offset by tax hikes in four to five years.
USDJPY is trading around 120.07 after falling on Friday by over 100 pips. The data from the CFTC IMM report showed a significant drop in net longs to 706 dollar/yen contracts for the week ending August 6th, from 3852 dollar/yen contracts the week before. This is the third consecutive week that speculators scaled back their net longs and marks the lowest level since April 23rd, hinting at further weakening of the yen for this week. Interim support for the pair starts at 120, followed by 119.50, the 38% retracement of the decline from 125.89 (June 13) to 115.50 (July 16). Minor resistance is seen at 120.68, the 50% retracement of the same move, followed by 121.33, the 6-week high, and 122. Heavy selling pressure seen building up at 122.50, the 38% fibonacci retracement of the move from 133.81 (April 1) to 115.50 (July 16).
The euro is steady near 97-cents as the CFTC IMM report showed a sharp drop in net longs for the week ending August 6th. Speculators were net long 20,022 euro/dollar contracts, down from 25,483 contracts the week before and falling to a 4-month low. Traders feel this drop reflects the unwinding rather than the adding on of new positions. Support for the single currency is seen at 96.55, followed by its 6-week low at 96.21 and 96.00. A breach of 95.75, the 38% retracement of the rally from 85.63 (Feb 2002) to 1.0201 (July 2002), will open the way to 94.50. Interim resistance is seen at 97.40, followed 97.80, and 98.00.
Economic highlights from the US consist of business inventories, industrial production, consumer price index, and the University of Michigan's confidence survey. Eurozone highlights include Germany ZEW economic sentiment, France industrial production and Netherlands Q2 GDP.