The dollar probed overnight lows in Tokyo after further losses on Wall Street, hawkish comments from the US on Iraq and a new terrorist attack in Israel put traders in a defensive mood. Last night's earnings warnings from Oracle and JP Morgan also renewed concerns about the US economic recovery and hints that markets were over optimistic, while a rebound may now be put off until 2003.
EUR/USD rose above its overnight high of 97.50, the 38% retracement of the 99.90-96.10 decline and rose to a session high of 97.88, just shy of the 50% retracement of the same move. A renewed push could carry it as high as 98.45, the 62% retracement before another fall. But only a move above 98.45 would negate the bearish outlook for EUR/USD. Above 98.45 targets 98.80, while below 97.50 opens the way for 97.00 and 96.10 lows. Key support seen at 95.80, the 38% of 85.65-1.02.
US equity futures still pointing in to a negative opening after back to back losses carried the US indexes below key support levels. US economic data expected later today consist of September Philadelphia Fed Survey, weekly jobless claims, August housing starts, and August building permits. Other data include U.K. August retail sales, Eurozone July industrial production, and France's Q2 current account balance.
As expected, OPEC agreed to keep oil production unchanged. Their decision highlights the fact that political events may continue to put upward pressure on oil, which is trading just under the key $30 per barrel mark. The next meeting will be Dec 12, but while the US may be at war risk, other countries, notably Japan and the Eurozone are at oil risk. Commodity currencies like the Canadian dollar and yen may also be at risk. This prompted the Bank of Japan to say this morning that Japan's exports face uncertainty due to moves in oil prices, and geopolitical factors. It added that downward pressure on Japanese prices is likely to continue on weak demand, thereby raising further deflationary concerns.
Nevertheless, the BoJ kept its view on Japan's economy unchanged for the 2nd consecutive month, saying the economy is stabilizing though it must watch the impact of weak stocks on financial system and real economy. In response to this, BoJ Governor Hayami stated yesterday that the central bank will consider buying shares from banks under a limited time frame, adding that 11 big banks and 4 regional banks would be eligible for the BoJ stock buy back program. While the new steps are not aimed at increasing market liquidity nor are they stock boosting measures, they are instead steps towards reducing banks' risks and helping the troubled banks reduce their large cross share holdings. The BoJ will buy approximately 4 trillion yen of Japanese stocks held by the 15 banks at market value starting in October over the course of 1-2 years.//www.forexnews.com