The dollar came off overnight highs around 97.85 cents to the euro and 119.20 yen, but remained firm as US equity futures point to another gain on Tuesday after back to back gains in US indices. Yet despite any relief rally the markets might muster after the 9/11 anniversary on Wednesday, the Dow and S&P will need to regain the key 9,000 and 960 marks to avoid another possible selloff into September and October, two of the worst months for stocks, historically. Failure to do so could turn the tide on the dollar which has enjoyed a two-month respite. Lack of compelling weakness in the US economy or certainty about a US attack on Iraq has kept the dollar within a 2-month long corrective consolidation against the majors. Therefore, recent dollar gains are mainly the result of short covering, and not reflective of rising demand for the greenback or renewed confidence in equity markets. Moreover, given that September is historically the worst month for stocks, and October is known for crashes, the key factor for the dollar going forward is that US equities do not fall below July lows. This would likely induce a further selloff in the dollar given that speculators continue to bet on a falling dollar but lack a catalyst to put it in motion.
GDP data from the Eurozone includes Q2 from Italy expected at 0.2% as well as Q3 and Q4 Eurozone indicator forecasts.
EUR/USD fell to an overnight 2-week low of 97.85 but waning selling pressure led to a rebound to 98.40 in late Asian trade. Resistance is seen at 98.60, 98.80 and 99.05, the Fibonacci retracements of the 99.85-97.85 decline. Below 97.85 opens the way for trendline support at 97.00. EUR/USD expected to trade within the range of 97.00 to 99.05.
GBP/USD rebounded to Monday's peak of 1.5615 from an overnight low of 1.5530. Key resistance seen at 1.5660 followed by 1.5725, Friday's high. Support is seen at 1.5535, 1.55 and 1.5450, which should contain any downside breaks before moving higher. USD/CHF held around its opening level of 1.4850. Today, SNB Chairman Roth will give a speech on the Swiss economy and on Thursday the government will release Q2 GDP figures which may give markets a clue on the state of the economy and any future interest rate cuts. A weak economy and strong franc could prompt the Bank to lower rates again, but only if the EUR/CHF falls decisively below support at 1.45/44.
The Nikkei rose nearly a mere 0.2% today after the 2% gain on Monday following the 5.1% cumulative loss last week as it hit a fresh 19-year low at 8,969. Additional selling pressure on Japanese stocks is anticipated as banks and corporations are set to sell shares in preparation for book closing at the end of September. Meanwhile the continued declines in Japanese stocks remains troubling for Japanese banks, which have to value their considerable shareholdings when they close their books at the end of the first half of the fiscal year. USD/JPY rose to an overnight 2-week high of 119.30, where it met with trendline resistance from an ongoing triangle shaped consolidation pattern. Failure to break above this level could lead to a test of trendline support at 117.00. Below here would target the 113-114 levels before a possible intervention by Japanese banking authorities to avoid a further rise in their currency.// www.forexnews.com