US equity futures turned from red to green in London trade, as they did on Wednesday, and traders are cautiously optimistic about another rally today on Wall Street. But FX traders stayed on the sidelines as they wait for direction. None of today's US economic indicators are likely to help the stock market rally, so the close will be key to anticipating any change in sentiment and the dollar's performance in the near term. Key technical and psychological resistance lies at 8,000-8,050 for the Dow, 855-870 in the S&P and 1250 in the Nasdaq, where a close above these levels would open the way for a more significant rally. But failure should lead to further declines targeting July's lows and be an impediment to dollar gains as the market remains concerned about the financing of the US current account deficit.
Wednesday' relief rally on Wall Street helped pull global equity markets higher but there is concern that it was just a needed bounce after so many down days. The key economic highlight is US durable goods orders for August, which is expected to fall 2.6% after rising 9.2% in July. The lowest forecast is for a 4.5% decline. While it is mostly seen as a payback to the previous month's excess, given the recent spate of negative consumer news, a worse than expected figure could easily pull US equities lower and weigh on the dollar. Weekly jobless claims are also seen at 420k from 424k last week. Claims have remained above the recessionary 400k level for the past three weeks now indicating new weakness in the labor markets and by connection, consumer spending stands at risk. Remember, payrolls data is due next week and is expected to show a renewed rise in the unemployment rate. Moreover, in a signal that the U.S. housing market may be softening, existing home sales fell in August by 1.7% from July and September new home sales are expected to mirror the 2.2% fall in August.
The dollar continues to hover in a familiar range against the European majors while the yen is testing trendline resistance against both EUR and USD; A break of which would be short term bullish for the yen. EUR/JPY and USD/JPY support is seen at 122.50 and 120.05, which are key to avoiding a larger correction. //www.forexnews.com