24 September 2002, 11:41  European Forex Trading Preview

//www.forexnews.com//The euro remained under pressure in Tokyo trade after falling against the dollar, pound and yen overnight. Wall Street started on a down note and never looked back with the Dow and Nasdaq falling about 1.5% and 3% respectively. In fact, stocks could stay pressured by earnings reports until the middle of October, highlighting the risk of hitting new multi-year lows. While this is a bearish development for the dollar, other countries and currencies are at risk as well. Most notably was the dismal performance in the FTSE and DAX. The FTSE 100 fell to its worst level in six years, posting a 121-point decline, or 3%, at 3739. Unnerved by the narrowest German election in history, the DAX plunged 151 points, or 4.9%, to hit a five and a half year low of 2914.
Rising oil prices also helped unseat the single currency, but not the pound, highlighting their respective dependence on petrol. Moreover, economic conditions in Europe and Japan remain more dire in comparison to that of the US and UK. Therefore, with US crude oil prices at a 19-month high of $30.93 in response to heightened fears of an attack on Iraq, the surge in oil prices could have a more severe impact on economic recovery in the Eurozone and Japan, as their stronger dependency on imported oil makes them more susceptible to price fluctuations.
In comparison, at the height of the last US/Iraq conflict in 1990/1991, GBP/USD rose 25% from before Iraq invaded Kuwait to the US ousting Iraq. This edged out the gains made by the Swiss franc which rose about 20% vs the dollar. It also occurred in lockstep with oil prices doubling from 20-40 dollars per barrel. Most notably, all the gains occurred before the US Congress gave Pres Bush authorization to go to war. Then, by the time war started the gains in oil, and losses in the S&P and dollar all came unwound. Moreover, the DAX and Nikkei fell more than the SP over this period.
EUR/USD fell from an overnight high of 98.60 and then below 98.45, the 62% of 99.85-96.10 and 97.95, the 50% retracement of the same move to a day's low of 97.53. Key backing is seen at double Fibonacci support at 97.40-50. Below here opens the way for 96.10 lows and possibly more. Key resistance remains at last week's 98.75 high. Above here is 99.10, the 50% retracement of the move from 1.0201 (July 18) to 0.9621 (August 6).
GBP/USD also gave up gains alongside EUR/USD but less so, given that sterling rose half a cent against the euro overnight past resistance at 63 pence. GBP/JPY is up nearly 8% since August lows around 179.00, about 1% more than gains in USD/JPY. Nevertheless, Cable remains in a corrective pattern since its July highs at 1.5860. Support seen at 1.5480 followed by 1.5400 and 1.5350.
USDJPY is steady at 123.60, retreating off its high of 124.23. Interim resistance is seen at 124, followed by 124.23, the session high, and 124.65, the 50% retracement of the decline from 133.81 (April 1) to 115.50 (July 16). A move above will target 125 and 125.30. Support is seen at 123.50, 123 and 122.47.
The yen's woes continue, falling sharply overnight as investor confidence of Japanese economic policy erodes and traders saw a green light to sell yen. The currency hit a fresh 3-year low against the euro at 122.05 and a 3-month low versus the dollar at 124.23 as heightened uncertainties about Japan's economic policies were triggered last week by the BoJ's announcement to purchase equities from banks to reduce their debt burden. The situation was exacerbated by PM Koizumi's inability to shed more light on his proposed anti-deflationary measures. The combination of both clearly took an impact on investor confidence in Japan, as evidenced with the failed 10-year JGB auction last week, ultimately triggering the yen sell-off that ensued. Meanwhile, sentiment to sell all things Japanese will likely continue, as Japan will have the most profound effect from further increases in oil prices.
Later today, markets will be tuning in to the decision of the Federal Open Markets Committee. While the FOMC had shifted its stance from neutral to accommodative in its previous meeting, the committee is expected to leave interest rates unchanged at the 40-year low of 1.75%. The Conference Board will also announce its consumer confidence index tomorrow, with forecasts predicting a reading of 93.7 for September from 93.5 in August. Other data scheduled for release today include France consumer spending, and Eurozone current account balance data.

© 1999-2024 Forex EuroClub
All rights reserved