The dollar was little changed in Tokyo after a broad based selloff in NY trade following revelations that UN weapons inspectors had found a cache of 11 empty chemical warheads in Iraq. The news was enough to break EUR/USD through options protection at 1.06, to a new 3-year high of 1.0625 while the subsequent exodus to safe-haven assets also dragged the dollar to a 4-year low against the Swiss franc at 1.3725 and propelled gold prices to 5-year highs above $358. USD/JPY remained above its previous 4-month low of 117.55 as Japanese officials continue to verbally warn the markets about pushing the yen much higher. US stocks opened higher but closed down for the second consecutive day as mixed data did little to calm war fears. Weekly jobless claims fell more than expected to 360k from 392k in the previous week, bringing continued claims to 3.293 mln. But the previous week did register a 19-year high at 3.429 mln and many critics contend that the weekly figures have been highly sporadic. Moreover, the January Philly Fed remained unchanged in January at 11.2 mimicking the cautious tone of Wednesday's Fed Beige Book which said the U.S. economy's current "soft patch" extended into early January, as consumers reigned in spending.
Today's economic data include EU November industrial production, seen up 0.2% in November after a 0.2% decline the previous month, bringing the annual rate to 1.2% from 0.3%. US data is likely to hold more sway with the markets as traders will await the November trade balance, December industrial production, December capacity utilization, and the University of Michigan's preliminary January consumer sentiments index. EUR/USD held above 1.06 after it rebounded sharply from Wednesday's low near the 1.05 level and then through option barriers at 1.06 following Iraq revelations. Resistance held at 1.0635/50, the 38.2% retracement of the 1995-2000 bear trend. Above here could carry the pair as high as 1.0680. Support is seen at 1.06 and 1.05-level followed by 1.0465 -- the 61.8% retracement of the fall from 1.1845 to 0.8227. But further gains are likely to be limited given that the dollar remains very oversold and may be due for a correction soon. Sterling also rebounded from the grips of a one week downtrend, shooting from the midpoint of its downtrend around 1.60, the 61.8% of 1.5910-1.6160, to an overnight high of 1.6145 just pips from its recent 3-year high of 1.6163. However, sterling has failed numerous times to hold above 1.61, so it will be interesting to see if this level holds for the pair to take out 1.6163.
USD/CHF sank more than a centime to a 4-year low at 1.3725. The previous low at 1.3785 now serves as resistance, followed by stronger selling pressure at 1.3850, the 61.8% retracement of the 1.11-1.83 rise from 1995-2000. Further flows into safe haven assets could clear the path to 1.3665/75 and 1.36. But further gains are likely to be limited given that the dollar remains very oversold and may be due for a correction soon. USD/JPY continues to struggle with the key 118 level, which marks the 50% retracement of the 101.25-125.70 rally, after falling to an overnight low of 117.60 in NY. Should the dollar fall below Tuesday's 4-month low of 117.55, there is little support between here and last year's 115.50 lows, except at the 117 handle, which marks the pair's 200-week moving average. Key resistance is seen at 118.65 and 119.00.
Meanwhile, Japanese officials continue to verbally warn the markets about pushing the yen much higher. But with verbal intervention providing minimal curbs for additional yen strength, Japanese officials may decide to step up their efforts in order to protect their dwindling export driven recovery. //www.forexnews.com