The yen rose across the board this morning on a combination of last minute repatriation flows and speculation that somehow Japan may be inching closer to much awaited reform. Markets were also relieved to see Financial Services chief Yanagisawa was replaced by pro-reform Economic Minister Takenaka, after the much anticipated cabinet reshuffle. Yanagisawa, who has repeatedly denied weakness in Japan's financial system while balking at the slightest hints of public funds injections, was forced out, thereby giving credibility to PM Koizumi who has stated he wants people who are willing to cooperate with his plans. The convergence of factors pushed JPY to a session high of 121.10 and 119.24 against the dollar and euro, up more than 100 pips in Asian trade.
Data from the CFTC IMM futures showed that speculators increased their net sell positions in dollar/yen contracts for the week ending September 24th, selling a net 18,080 contracts, up from 16,374 net sell contracts a week earlier. The increasing negative bias against the yen means that many short positions were probably squeezed today, as USD/JPY fell through key support in the 122.00/121.80 area. Moreover, lower levels in the pair attracted large bids ahead of support at 121.00 and pushed the dollar back above 121.40, the 38% retracement of the 116.85-124.20 rally. Key backing is seen at 120.70-85 and 120.50 which should continue to see buying in this area and support the pair. Resistance eyed at 121.90, 122.40 and 122.80.
Meanwhile, budget concerns and weak economic data continue to restrain the euro from making much headway against the dollar or sterling. Over the weekend, German FinMin Hans Eichel stated that he saw a gap of 10 billion euro in its 2003 budget and aims to tackle it with spending cuts and by ending certain tax breaks. Eichel also stated the new budget plans will assume growth in 2003-2006 of 1.5% per year and added he is still committed to balancing the federal budget by 2006. The difficulty with this plan is that it would cut off needed spending and stimulus at a time when the Eurozone's largest economy is struggling.
Friday's momentum carried EUR/USD to a session high of 98.45, but stopped at this key resistance mark. The euro is now steady at 98.20. Resistance is seen at 98.45, followed by T/L at 98.80 and 99.05, the 50% retracement of the move from 1.0201 (July 18) to 96.07 (Sept 17). Support stands at the 98-handle followed by 97.50 and 97.20. A breach below should find a floor at 96.07, the September 17th low. Nevertheless, the euro has still managed to hold above 95.85, the 38% retracement of this summer's rally and euro contracts rebounded 16% in the week following the fall to 96.07 lows which coincided with its steepest drop in 4 months. Speculators increased their euro/dollar net longs to 14,602 contracts from 12,610 the week before.
Meanwhile, speculators reduced their net sell positions in both GBP/USD contracts and USD/CHF contracts. Speculators sold a net 3,074 USD/CHF contracts, trimming their positions from a net sell of 5,904 contracts a week earlier. Speculators scaled back their net sell positions in cable to 1,680 contracts, from 2,423 in the previous week.//www.forexnews.com