The Nikkei fell 3% to a new 18- year low this morning but failed to bring down the yen despite signs of renewed economic weakness. On Friday, Japan's GDP rose 0.5% in April-June, better than expected, but was offset by a downward revision of the previous quarter to 0% from an initial 5.7%. While the news is very troublesome to government officials and investors, traders were reluctant to sell yen because of repatriation fears. Moreover, given that Japanese officials are prone to meddling in the market, traders may be waiting on the sidelines for an indication as to whether or not the government may try to boost stock prices. The dollar shed half a cent from Friday's high of 97.95 against the euro, while also falling nearly one yen to a session low of 117.85. But the dollar remains in a tight range against the majors and is expected to hold there ahead of today's US August ISM data. On Friday, a surge in the Chicago purchasing managers' index lifted the dollar from its doldrums following weak consumer confidence reports. The Chicago PMI index posted a surprising jump to 54.9 in August from 51.5 in July, indicating that Tuesday's PMI should remain above the key 50 level after falling to 50.5 in July.
Today's data from the Eurozone is expected to show another drop in PPI for August, with the annual rate down holding in negative territory at -0.6%.EUR/USD rose to a session high of 98.55, ahead of key trendline resistance at 98.60/75. A break above here would likely initiate further buying targeting 98.90 and 99.10 resistance levels ahead of parity. According to the futures CFTC data from the IMM, speculators added to their net long positions in non-dollar contracts last week. After weeks of pairing back on their longs, euro contracts saw a strong rise to 22,088 in net long positions from the prior week's 17,863. This indicates that speculators expect to at least see another test of parity in the coming weeks. In fact, EUR/USD remains on a solid uptrend from 96.60. But failure to break above 99 cents today could lead to a test of 98.20 trendline support, and a break of that level could target key support at 97.40, the 62% retracement of 96.60-98.80.
Japan PMI fell to 51.0 in August from 52.7 in July. The Nikkei also plunged another 3% to a new 18-year low of 9217. But USD/JPY fell to a session low of 117.83 after failing to break the 119 level overnight. Fears of seasonal repatriation appear to be supporting the yen. USD/JPY needs to hold above 117.72, the 61.8% retracement of the rise from the 115.55 low to the 121.32 high to avoid a further selloff. Below here would open the way for 117.40 ahead of the 115.55 lows. Resistance still seen at 119.00 and 119.50. //www.forexnews.com