The dollar rebounded with US equities overnight but came back under pressure in Tokyo trade as traders brace for key US economic data today and tomorrow as well as President Bush's meeting with PM Blair on Saturday to discuss invading Iraq. ISM services data and jobs growth are expected to show a slight improvement in August, but not enough to offset growing concerns over the slowing US recovery. From Germany, July manufacturing and retail sales data are expected to rebound from their sharp declines in June, but not change the depressing outlook. England's MPC is expected to keep rates unchanged at 4.0%. EUR/USD rebounded from support at 99.05, the 38% retracement of 97.90-99.75 rally. Additional support at 99.10, the 50% retracement of 1.02-96.21 also aided the euro's recovery after an overnight fall from 99.75, the 62% retracement of 1.02-96.20. EUR/USD price action continues to divide traders into two camps. But only a break of key resistance at 99.75 or support at 98.60 which marks the intersection of myriad trendline and Fibonacci supports, would confirm either the bulls or bears. Rumor of options being protected above parity may continue to limit the upside, but another decline on Wall Street today could drive the euro above that target over the near term. With US equity futures unchanged this morning after Tuesday's recovery, European trade is expected to remain rangebound ahead of key US and German data. The greenback has been overshadowed by lingering worries over the US economy, with the markets now looking ahead to August non-manufacturing ISM, and Friday's August Labor report. Services data is seen edging higher to 53.6 from 53.1, a modest rise after manufacturing data remained unchanged at 50.5, dangerously close to contraction. Friday's jobs data is seen up 37k from 6k, but hardly enough to keep the unemployment rate below 6% much longer.
Tokyo's Nikkei rose nearly 150 points today after falling for seven consecutive sessions, to a new 19-year low of 9,075 on Wednesday. While the news is very troublesome to government officials and the banking sector, traders were reluctant to sell yen because of repatriation fears. Moreover, Japanese repatriation of foreign-based assets becomes especially worrisome given the sharp fall in Tokyo shares since March and the strong gains in European and US markets over the past month. Therefore, selling of foreign assets could exacerbate the downward trend in USD/JPY as US markets fall and Japanese repatriate. The other vicious circle at hand could be a falling Nikkei causing banking shares to fall, which adds fresh concerns about a crisis, causing further declines in the Nikkei.
USD/JPY fell from a US high of 118.35 after being down as far as 117.00 overnight. But renewed weakness is pushing the dollar towards key support at 117.75, the 61.8% retracement of the rise from the 115.55 low to the 121.32 high. Failure to maintain above this level risks a further selloff targeting 117.00 support ahead of the 115.55 lows. Resistance still seen at 118.30 ahead of 119.00 and 119.50.
Meanwhile, sterling continued to flex its muscle, rising over 4 cents against the dollar and 1 pence against the euro in two weeks. UK data outperformed expectations, helping drive GBP/USD to new one-month highs at 1.5680 in Tokyo. On Tuesday, sterling rose above 1.5600, the 62% retracement of the 1.5866-1.5160 decline and is now poised to retest those highs as long as it can maintain above congestion at 1.5640 and the key 1.56 mark. // www.forexnews.com