5 May 2003, 16:29  Dollar Holds Near Lows, Eyes on Wall Street This Week

The dollar held near last week's lows but was mostly unchanged from Friday's New York close as traders sat on the sidelines with both Tokyo and London markets closed for holidays. Today will see the release of April's service sector ISM report, which is expected to improve to 49.0 from 47.9 in May. But a downward surprise could happen. Recall that the Institute of Supply Management manufacturing index unexpectedly fell to 45.4 in April from 46.2 in March, while analysts were expecting an increase to 47.2. The Challenger's report of April layoffs will also be watched after non-farm payrolls fell 49,000 in April after a 124,000 plunge the month before, registering the third straight month of deterioration. While last month's drop was smaller than expected, the March figure was upwardly revised from the previous estimate of 108,000 losses. The headline unemployment rate also worsened, rising to 6.0% from 5.8%.
The other important event this week will be the Fed meeting on Tuesday. While markets expect no change on interest rates, nor any change from the ECB on Thursday, Greenspan's latest somber assessment of the economy makes a rate cut almost certain if the stock markets begin to sell off again. The most interesting aspect of last week's decline in the dollar has to do with the continued performance on Wall Street. Hope is running high and the bulls have had their day, but measures of sentiment indicate that the odds now favor the bears, from a risk-reward basis. Therefore, this week's action in stocks could dictate the direction for the coming months. Look for a break above 965 in the S&P 500 as indication for a much larger move higher, while a close below 900 may indicate the resumption of the hibernating bear trend. Today, US equity futures reached marginally new highs and are pointing to a higher open on Wall Street. Nevertheless, the dollar fell sharply against the majors last week, managing only to rise on profit taking ahead of the weekend as US stock markets continued to look past unfavorable economic data.
EuroFX
USD/CHF lead the way higher and helped the dollar push the other European majors off of their peaks for the day. USD rose to a session high of 1.3495 as it continued to rebound from last week's lows below 1.34. That selloff was precipitated by a break below support at 1.3540, the 61.8% retracement of the rally from 1.3226 to 1.4080. This level now marks key resistance. Failure to maintain 1.34 opens the path to a revisit of 1.3335 and 1.3270. Resistance seen at 1.35, 1.3540 and 1.37. The Swiss National Bank's Blattner said today in a paper that he was pleasantly surprised by the upward pressure on the franc eased so quickly. Nevertheless, the SNB could still intervene by increasing liquidity if the franc were to spike higher agianst the euro. Recall that EUR/CHF jumped to a 1.5 year high above 1.51 after breaking out of a 2 year trading range.
EUR/USD held above the 1.12 mark after falling nearly one cent on profit taking on Friday following gains to a fresh four-year high of 1.1287. Resistance is eyed at 1.1280, followed by 1.1325 and 1.1360. Support seen 1.12/1.1190 followed by 1.1150, 1.11 and 1.1040/50.
GBP/USD fell back below 1.61 after recoiling from a seven-week high at 1.6136, just shy of 1.6145, which marks the 61.8% retracement of the fall from 1.6572 (January 31st) to 1.5458 (April 7th). The next target is seen at 1.62, followed by 1.6240, 1.6275, and 1.6350. Support is eyed at 1.605 and 1.603.
JPY
EUR/JPY climbed to a fresh 4-year high at 133.78 last week, and continues to hover between 133 and resistance seen at followed by 134. A breach above 134 will encounter subsequent ceilings at 134.50, and key resistance at 135.05 - the pair's all-time high from Feb 26, 1999. On the downside, interim support is seen at 133. Additional support for the pair emerges at 132.40-50, followed by 132.10 - trendline support from the 127.43 low (Apr 8) to the 131.50 low (April 29).
USD/JPY is trading near the 119-level, up from last week's one-month low at 118.12. Traders have grown increasingly wary of aggressively bidding the yen higher due to fears of government intervention. Interim resistance is seen at 119.20 - its 50-day moving average, followed by 119.70 and 120. A breach above will target 120.40 - the pair's 200-day moving average. Support is seen at 118.50, followed by 118.10-20, 117.70 and 117.40.//www.forexnews.com

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