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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (3491)	11/25/2002 2:00:08 PM
From: Don Green	Respond to of 3536

The dollar rebounded from earlier losses against the European majors and continued to exert pressure on the yen today as trader unwound more short positions in the face of improving economic data from the US last week and the prospect for further gains on Wall Street. Showing signs of stabilization, last week's data helped the dollar higher and this week's consumer confidence report, durable goods orders and housing reports should be just as important for the greenback. forexnews.com Meanwhile, all eyes are on Tuesday's Ifo survey from Germany, which is expected to show a sixth consecutive monthly decline. But while this news is bearish, recall that last month traders exhibited a common "sell the rumor, buy the fact" as they pressured the euro lower ahead of the release and took profits after the index was slightly better than market expectations at 87.7. In fact, not only did the market not sell the euro further on this news, the currency rallied over one cent against the dollar that day and went on a two-week run until it topped at 1.0168. November's German Ifo report is expected to fall yet again to 86.8 from 87.7 last month and the euro's slide has raised concerns about the euro's viability as an alternative to the dollar and whether it can actually maintain above parity after two distinct failures following the July high of 1.02 and this month's high of 1.0168. EUR/USD has now broken below key supports at 99.85 (on Friday) and 99.20 today, putting key support at 98.65, the 61.8% of the October-November rally. Below here would be of serious concern to euro bulls as it would imply the resumed uptrend in EUR/USD was a false start. Key resistance is seen at parity ahead of the previous highs at 1.0140 and 1.0168. In an ECB report released today the central bank said Eurozone inflation may rise in the near term but fall below 2% in 2003, while growth is to reach near its potential in 2003. Therefore, another decline in the much-anticipated Ifo survey will only further convince the market of a December 5 rate cut from the ECB, which has kept its rates steady at 3.25% for over a year. Last week, the ECB's Quaden said that a rate cut could help to decrease overall pessimism and that the ECB will take account of weaker than expected growth prospects after falling stock prices and geopolitical uncertainty have dampened investment and growth prospects. GBP/USD losses were even more pronounced as the pound gave back some of last week's gains against the euro while also falling in tandem with the euro against the dollar. Cable fell over once cent today, reaching a session low of 1.5555. Key support is seen at 1.5520, the 61.8% retracement of the Oct-Nov rally. Like EUR/USD a break below this level would indicate that the anticipated dollar decline was a false start. But until then, the outlook remains cloudy. In Japan, FSA and Economics Minister Heizo Takenaka stated on Sunday his intention to request 2-2.5 trillion yen tax cut in fiscal 2003. Takenaka echoed a similar message to that of both PM Koizumi and LDP Party Policy Chief Taro Aso, who called for tax cuts of at least 2 trillion yen. Despite earlier pledges to maintain fiscal discipline, the government last week approved a supplementary budget for the current fiscal year. Furthermore, the financing of the extra budget would come from the issuance of fresh government bonds, thereby breaking above the 30 trillion yen cap. Concurrently, ratings agency Fitch downgraded Japan's sovereign debt rating from AA to AA-, citing the government's inadequate reform efforts and pessimistic outlook. The downgrade also reflected market sentiments that Japan's extra supplementary budget signaled a reversion to past practices and will provide little benefit to the economy. Nevertheless, the yen rose sharply this morning after holding off an attempt to break key resistance in USD/JPY at 123.25, which marks the 61.8% of 125.62-119.10. The yen also successfully defended last week's 3-year low of 123.15 against the euro, which led to many players taking profits. USD/JPY stabilized and today's correction is holding above 122.50 despite further losses in EUR/JPY, down one yen on the day. As long as the dollar holds above 122.35, the 61.8% of 121.90-123.18, the bullish outlook remains intact. A move above 123.25 would likely lead to a test the previous high of 125.62 In other news today, Bank of Japan Governor Hayami indicated he is cautious about causing the yen to weaken to overcome deflation, saying it is hard to artificially manipulate currencies and it would have to be taken into account the impact on other countries and trade. Hayami also said Japan should maintain its strong currency and economy, which is the regular stance taken by the Governor. Meanwhile, traders will keep one eye on Wall Street now that bullish sentiment has risen above levels seen at last August highs and the S&P is a mere 30 points away from that mark after stocks rallied hard last week, putting the SnP and Dow above key resistance at 923 and 8650 which should push them towards last August's highs around 965 and 9000. This will prove the toughest resistance of all and would be a key test for this bear market rally. Only a break of the August highs would change the medium term bearish outlook for stocks as most indicators are signaling it overbought and ripe for a correction, or renewed decline.