The dollar was relatively unchanged in thin Asian trade with Japanese markets closed for the first day of Autumn. FX traders will have plenty of data and events to watch this week as well as keeping an eye on Wall Street as it threatens to mark new multi-year lows. Israel's siege of PLO leader Arafat's compound and Iraq's decision to reject any new UN resolution on weapons inspections will also keep an air of uncertainty in the markets and upward pressure on oil prices, trading just under the key $30 per barrel mark. The euro traded steady after German election results showed Chancellor Gerhard Schroeder managed to come from behind and win another four-year term. Preliminary results show his SPD party received 38.5% of the vote, making it the narrowest margin in German history, as Schroeder edged out his opponent by only two or three seats.
EUR/USD slipped back below 98.45, the 62% of 99.85-96.10 and is hovering around 98.15. Support is seen at 97.95, the 50% retracement of the same move followed by double Fibonacci support at 97.40-50. The euro has continued to push higher against the sterling and yen in recent weeks and a break above 98.20 trendline resistance today could open the way for a 98.45 resistance and last week's 98.75 high. Above here resistance at 99.00, 99.50 and 99.90 seen capping strength today.
The yen edged modestly higher on profit taking in light Asian trade after plunging across the board last week following confusion over the Bank of Japan's decision to buy stocks. This move is seen as suspect and indicative of the dire conditions in Japan. Speculators are also betting that it will fail to improve Bank's standing if JGB's come under further pressure since Banks hold more JGBs than shares. Moreover, this move challenges the BoJ's credibility and uncertainty over the outcome of such a move caused traders to under subscribe a new issue of 10 year JGBs for the first time on Friday even as the Nikkei fell.
Investors also worried over Japan's dependence on imported oil and an export led recovery which has helped push the yen lower as well. EUR/JPY lead the way, rising above last January's high of 119.70, to a new 4-year high of 121.40 on Friday. But the current pace may be unsustainable with daily stocastics in the overbought region. A correction could take EUR/JPY to support at 120.50 but not likely below 119.70.
Despite dollar weakness across the board, USD/JPY rallied 2 yen to a high 123.68 on Friday, but like EUR/JPY the current pace may be unsustainable with daily stocastics in the overbought region. Support is seen at 122.90 reaction low followed by double Fibonacci support at 120.60. Follow up support eyed at 122.30 and 121.95 and trendline support at 121.50. Below here opens the way for 120.90 lows and a break of this level jeopardizes the upward bias. But as long as trendline support at 120.50 holds, a falling yen into October is what most speculators are counting on. ///www.forexnews.com