The dollar was the clear winner overnight, clawing its way back to Monday's opening levels against the European majors and yen as Wall Street staged an impressive afternoon rally. Weaker than expected manufacturing data was not enough to deter traders from bottom fishing in a highly oversold market, sending the Dow surging 4.5%. But dealers worry that this may just be another bear market bounce on its way to further losses. Regardless of those fears the dollar rose to an overnight high of 98.10 cents to the euro and 123.18 yen.
European data today includes German retail sales, seen worsening to -2.7% in August from -1.7% annually and Eurozone business and consumer sentiment also falling in August.
EUR/USD slipped below key support at 98.40, the 38% and 62% retracements of the declines from 1.0201 to 96.21 and from 99.88 to 96.07, after the pair again failed to overcome T/L resistance at 99.80 on Tuesday. Options protection at 99 cents ahead of 99.05, which marks the 50% retracement of the decline from 1.02 high to the 96.10 low, also helped cap the upside. But strong bids were found ahead of 98 cents in Asian trade, helping put a floor under the euro. Follow up support seen at 97.50.
Sterling fell over 1.5 cents from an overnight two-month high 1.5764 as it was dragged down by EUR/USD which again failed to maintain above T/L resistance at 98.80. Sterling slipped below T/L resistance turned support at 1.5645 but held above key Fibonacci support at 1.56, the 62% retracement of the decline from 1.5865-1.5160. Cable is now hovering back above T/L at 1.5645 and if it can hold above here it should target 1.5780 ahead of key resistance at 1.5866, the 26-month high from July 26th. Support is seen at 1.5645 followed by 1.5595 and 1.55.
Sterling significantly outperformed the other European majors against both the dollar and yen in September, marching to within one penny of its July 26 high of 1.5865 and gaining over 2% more than the euro did against the yen last month. The pound is now up six cents from its August lows against the dollar while the euro languishes nearly 4 cents off its July high of 1.02. Moreover, the pound has recently broken key trendline resistance against both the dollar and yen, implying that its correction against those two currencies has come to an end. In the past, divergent movements between EUR/USD and GBP/USD were usually caused by speculation over when England would join the EMU. This time is no different, but the current decoupling owes more to falling expectations over EMU entry as well as rising oil prices and economic uncertainty, which historically benefit the pound and weigh on the euro.
The dollar soared to a high of 123.20 in Tokyo on the back of strong dollar demand and yen weakness stemming from the Nikkei fall to fresh 19 year lows. Bank stocks were hit hard after a report from the Jiji news wire that pro-reformer Kimura is expected to head a unit targeting the bad loan problem.
USD/JPY resistance is seen at 123.20, followed by 123.50 and 124.19, the multi-week high from Sept 23. Support is seen at 122.50, the 38% retracement of the decline from 133.81 (April 1) to 115.50 (July 16), followed by 122 and 121.38, the 38% retracement of the climb from 116.84 (Sept 3) to 124.19 (Sept 23). ///www.forexnews.com