/www.forexnews.com/ Despite upbeat economic data, the dollar was weighed down by heightened fears of war with Iraq. UN chief weapons inspector Hans Blix delivered his first assessment of Iraq's weapons disclosure, stating that the declaration contained inconsistencies and failings. Although the UN stopped short of saying Iraq was in 'material breach' of the weapons resolution, both the US and the UK declared that it had failed to meet its obligations, thus constituting a material breach. US Secretary of State Colin Powell stated that Iraq's weapons declaration was anything but complete, full and accurate and added that if Iraq continues its pattern of lying, no peaceful resolution would be reached. Meanwhile, increased risk aversion drove gold prices up to a near 6-year high at $353.75/ounce, and oil prices hovered above the $30-level.
Both the November leading indicators index and the December Philadelphia Fed survey came in better than expected. The November LEI jumped 0.7% to 112.3, from an upwardly revised 0.1% last month. Meanwhile, the Philadelphia Fed survey rose to 7.2 in December from 6.1 a month earlier. Particularly optimistic about the survey was the 6-month outlook in business conditions, which edged up to 49.7 from 49.0. Separately, weekly jobless claims fell by 11k to 433,000 from 444,000 the week before, above expectations over a 50,000-drop back below the key 400,000-level.
The US budget deficit ballooned to $59.10 billion in November from $54.27 billion a year ago. Furthermore, the year-to-date figure for the first two-months of budget year 2003 jumped to $113.09 billion, versus $61.92 billion a year earlier.
The ECB's chief economist Otmar Issing told the Stuttgarter Zeitung newspaper that he foresees Eurozone growth accelerating in the second half of 2003. He stated that inflation is proving to be more stubborn than desired, yet he expects inflation to decline next year and sees further price rises more likely than deflation. Meanwhile, the ECB's Klaus Liebscher sees eurozone inflation falling below 2% in 2003 and anticipates stronger growth prospects for next year as confidence improves. He also stated there was no need to revise the bank's two-pillar monetary policy strategy.
On the data front, Eurozone industrial production came in better than expected, falling 0.2% compared with consensus forecasts of a 0.6% drop.
EURUSD fell to a session low just above the 1.02-handle immediately after the US economic data, however as geopolitical tensions were brought to the fore, the pair recouped back towards 1.0270. Interim resistance seen at 1.03 followed by 1.0335 its 3-year high, 1.0350 and 1.0365. Additional gains will find heavy downward pressure at 1.04. Support starts at 1.230, backed by 1.02. A move lower will open up 1.0170 and 1.0140.
UK retail sales for November rose less than expected, edging up 0.1% m/m and 4.0% annually. Nonetheless, cable remained near its 2-1/2 year high at 1.6056. A break above will face subsequent ceilings at 1.6080, and 1.6120. On the downside, support starts at 1.6000, backed by 1.5980 and 1.5965. A breach lower will find support at 1.5930 and 1.59.
USDCHF hit a fresh three and a half year low in London trade at 1.4211. Support is seen at the 1.42-handle. A breach below will find subsequent floors at 1.4150 and 1.41. On the upside, resistance starts at 1.4250, followed by 1.43. A move high will face subsequent ceilings at 1.4320 and 1.4350.
Dollar/yen recouped somewhat after falling to 120.46 following comments from Japan FSA and Economics Minister Heizo Takenaka in which he emphasized the government should not aim to have a weak yen as a target. However, Takenaka also added that the yen would likely weaken as a result of monetary easing.
Meanwhile, the Japanese government stated that deflation may persist but downward price pressures are expected to recede in 03/04. It forecasts FY 03/04 GDP at real 0.6%, nominal 0.2%. While GDP forecasts for the current fiscal year are seen at a real 0.9% and 0.6% nominally.
USDJPY fell before the 121-handle. The pair faces interim resistance at 121, followed by 121.20-30 and 121.60 the 61.8% retracement level of the rally from 119.10 to 125.71. Further gains will find subsequent ceilings at the 122-handle, followed by 122.40 the 50% retracement of the aforementioned move. On the downside, floors will emerge at 120.30 its one-month low, backed by the 120-handle, which marks trendline support from 115.50 through 116.84. A breach lower will open up 119.50 and 119.25.
US equities ended lower for the third consecutive session, as geopolitical concerns weighed on stocks despite upbeat economic data. The Dow Jones fell by 0.97% to close at 8,365.22, while the Nasdaq lost 0.54% to finish at 1,354.16 Tomorrow could possibly be a volatile day of trading as it marks the first quadruple-witching, in which equity options, stock index futures, stock index options and single-stock futures all expire in the same day.
Fed Chairman Alan Greenspan will be speaking on the economy at the Economics Club of New York at 8:20 PM EST. It is likely that Greenspan will highlight the resilience and the fundamental strength of the economy and reiterate that risks are balanced.
US economic data for Friday consist of Q3 final GDP, final sales and the implicit deflator. The final figures for GDP and implicit deflator are seen unchanged from the preliminary numbers, with Q3 GDP expected at 4.0% and implicit deflator seen at 1.0%. Eurozone data will see from Germany: PPI, import prices and construction orders, from France: current account, CPI, HICP, and consumer spending, from Italy: industrial orders, industrial sales and cities CPI, and lastly for the euro area: October preliminary trade balance and September revised trade balance. The October preliminary trade figure is seen climbing to 10.7 bln euros, from 9.5 bln euros a month earlier. Data from Japan include the October tertiary sector and all-industries index, both forecasted at 0.4%.