European Forex Trading Preview //www.forexnews.com//At 6:00:00 AM E-12 Eurozone HICP m/m (exp -0.2%, prev 0.0%) E-12 Eurozone HICP m/m ex Food/Energy (exp -0.1%, prev 0.1%) E-12 Eurozone HICP y/y (exp 1.9%, prev 1.8%) E-12 Eurozone HICP y/y excl Food/Energy (exp 2.4%, prev 2.5%)
The dollar and yen came under pressure in Tokyo trade with the euro gaining half a percent to 3-day highs of 98.70 cents and 115.84 yen. The dollar continues to lose ground as weak data underscore uncertainty in the US economic recovery. Tokyo shares also came under pressure with the Nikkei falling 2% to 9588, after the S&P warned that Japan's slow pace to reform could adversely affect the government's sovereign rating. Six months ago the S&P cut Japan's rating to AA- from AA, which preceded a cut by Moody's and invoked strong criticism from the government whose debt was put below Botswana.
USD/JPY rose to a session high of 118.05, above support at 117.75, but still below 118.25, the 38% of 121.35 to 116.30. Recent rumblings from Japanses officials over the sharp rise in JPY last week helped put a floor under the dollar, but failure to overcome 118.25 today would likely lead to a retest of 117.75, the 68% of 115.50 to 121.33. Below here would worsen sentiment, possibly targeting 116.30, and below that this year's low of 115.45.
Data from the MoF showed that foreign investors were net sellers of Japanese stocks for the 8th consecutive week. Many feel the Nikkei is in for a small rebound this week after the CEO deadline on August 14th turned out to be a non-event for US stocks. Yet gains are likely to be capped due to selling of cross-shareholdings by banks, which are likely to get rid of 5 trillion yen of these holdings in the fiscal year to March 2003. The selling is expected to pick up in the coming month and extend into September since banks are eager to rid themselves of these holdings before the end of the first half ending September 30th.
According to the CFTC IMM report, speculators continue to scale back their net long euro/dollar contracts to 19,782 contracts for the week ending August 13th from 20,022 contracts a week earlier. This marks the 4th consecutive week of declines and a fresh 4-month low in the speculative net long contracts, making room for more longs to be bought this week. EUR/USD continues to rise in its ascending channel from the 96.21 low and is now poised to test last week's double top at 98.90 after rising above its 50-day moving average last week. Follow up resistance is seen at 99.10, the 50% of 1.02-96.20. A break above here would likely meet with stiff resistance around 99.80, the 62% of 1.02-96.20, followed by parity. Support seen at 98.20, both Fibonacci and trendline support from 97.40. Key support is seen at 97.90, which happens to mark its 50-day moving average, a previous low, Fibonacci support and trendline support from 96.20. Only a move below 97.90 would envoke a bearish outlook for the euro. Germany's Social Democratic party endorsed its plan late last week to reduce the nation's unemployment by half to 2 million in 2005. The report, prepared by an independent government-appointed commission headed by Peter Hartz, personnel chief of Volkswagon, focuses on creating incentives for the unemployed to jobs in existing vacancies, or in low paid sectors where current restrictions prevent job creation, as opposed to giving employment a boost through higher economic growth. According to the Hartz proposal, the plans would reduce the average length of unemployment from 33 weeks to 22 weeks and no additional funding would be needed for its implementation. German Chancellor Gerhard Schroder's party called for the first measures from the Hartz Commission report on labor market reform to be implemented in January as he struggles to win back confidence before elections later this year. But critics doubt the feasibility of reducing the number of unemployed to 2 million within three years. Moreover, Volkswagon is a large employer in southern Germany, where Schroder's main rival, Stoiber, has claimed success on the economic front. This makest the SDP's endorsement a positive for Stoiber as well. Over the weekend German Chancellor Gerhard Shroeder said aid discussed by central European leaders for the flood stricken regions would not endanger deficit limits set down in the Eurozone's stability pact. German Fin Min Eichel also said Germany remains committed to the Stability Pact despite the projected new spending on relief for floods that hit southern Germany. Eichel said the cost would likely run into the billions of euros but did not specify how the government would keep its deficit from rising. Recall, Germany barely escaped a formal warning from the EU Commission this year as its projected government deficit rose close to the 3% limit set by the Growth and Stability pact. Last week the dollar slipped below ascending channel support against the franc, inducing a slide to 1.4750 CHF, the 50% of 1.4340-1.5150. The dollar subsequently failed to regain trendline support at 1.5010 and is now edging along key support at 1.4850, the 38% of 1.4350 to 1.5150. A break below here would call upon 1.4750 ahead of 1.4660, the 62% of the same move. Below 1.4660 would likely lead to a selloff targeting 1.4350 lows.