The dollar continued to edge lower against the yen in Asian trade today after coming under pressure across the board in NY trade overnight. EUR/USD rose to a session high of 98.30, just pips away from key resistance around 98.40/45. Meanwhile, the yen rose sharply on profit taking after a large round of selling pressure abated, and downward momentum faded. Markets will watch for today's German Ifo business confidence reading which is expected to fall again in September to 88.2 from 88.8 the previous month. This is down from its March high of 91.6 and edging closer to its October 2001 low of 84.7.
German business leaders remarked overnight that the German economy is heading into a recession, and the European Commission finally gave into its most powerful members, Germany, France and Italy, by giving them an additional two years, or until 2006, to balance their budgets. These events by themselves would normally be reason enough to sell the single currency but the backdrop in the US is not much brighter. In fact, weighing on the US markets were concerns that the Fed is split on whether or not to cut rates again which calls into question the repeated assurances from Fed Chairman Greenspan and Co. that the economy is on a slow pace to recovering. Moreover, with excess capacity in the world, global corporate profits are under pressure, making business investment weak, thereby keeping the consumer as the sole engine of growth over the past two years. Therefore, as uncertainty permeates the global markets it has kept the dollar in familiar ranges against the European majors.
On the other hand, the yen has come under intense selling pressure in recent weeks as slower global growth, rising oil prices and lack of confidence in government policy contributed to a sharp selloff. This has prompted international credit agencies to again threaten to downgrade Japan's sovereign debt rating unless a coherent plan to tackle deflation and bad bank loans can be enacted. These factors have made currency traders jump at the chance to sell yen, especially given the rangebound price action between the dollar and the other majors. But the fact that Japan's debt is almost entirely owed to domestic investors and that it has a massive current account surplus, much of the yen selling has already accounted for the renewed fears in the market.//www.forexnews.com