US Forex Trading Preview: At 8:00:00 AM Canada Bank of Canada monetary policy decision (exp 2.75%,prev 2.75%) At10:00:00 AM US November challenger layoffs (exp n/f, prev 172k)

November 30, 10:46 PM: EUR/$..1.2024 $/JPY..109.78 GBP/$..1.7253 $/CHF..1.2884 AUD/$..0.7247 $/CAD..1.299

European Forex Trading Preview by Korman Tam

At 3:45 AM Italy November manufacturing PMI (exp n/f, prev 51.8) At 3:50 AM France November manufacturing PMI (exp 52.7, prev 51.0) At 3:55 AM Germany November manufacturing PMI (exp 52.3, prev 51.2) At 4:00 AM Eurozone November manufacturing PMI (exp 52.5, prev 51.3) At 4:30 AM UK November manufacturing PMI (exp 54.5, prev 54.2) At 10:00 AM ECB President Trichet testifies to EU Economics and Monetary Affairs Committee

The dollar came under fresh selling pressure against the European majors in Asian trading, while edging up versus the yen. Last week's flurry of robust US economic reports provided little upside for greenback, highlighting the markets' focus instead on geopolitical worries and the US deficits. Central bank meetings will be the highlight this week, with the RBA, BoE and ECB deliberating monetary policy. The greenback remains weak heading into the European session, hovering near its lows versus the euro at 1.2028 and the sterling at 1.7250.

Euro to new highs

ECB council member Welteke said to German newspaper Welt am Sonntag that the bank's governing council was correct in criticizing last week's decision to give Germany and France greater flexibility in Growth and Stability pact. Welteke said the decision would undermine the credibility of the EMU, and as a result, confidence in the euro as well.

In the coming session, markets will look ahead to manufacturing PMI data from Italy, France, Germany and the Eurozone. The E-12 November manufacturing PMI figure is seen posting its fifth consecutive monthly improvement to 52.3, also hovering above the key 50-level for the third straight month. The 50-mark is seen differentiating expansion from contraction.

The single currency rallied to a fresh high against the dollar in early Tokyo trading, rising to 1.2035. Further gains will target 1.2040, followed by 1.2060 and 1.21. Subsequent ceilings are seen at 1.2150 and 1.22. On the downside, interim support starts at 1.1975, followed by 1.1925 and 1.19. Additional floors are eyed at 1.1850, followed by 1.18 and 1.1760.

EURJPY was propped above the 132-level, climbing to 132.24. Further gains will target 132.30, followed by 132.80 and 133.15. Subsequent ceilings are seen at 133.45 and 134. On the downside, interim support begins at 131.85, followed by 131.30 and 131. Additional floors are eyed at 130.60, backed by 130.20 and 130.

Yen weakens to 110-level on banking worries

The Bank of Japan announced earlier that it would inject additional liquidity into the money market following the government's move to bail out Ashikaga bank. The BoJ offered to purchase 1.0 trln yen of bills from the money market, maintaining its current deposits target at 31 trln yen. Japan PM Koizumi said that the government was temporarily nationalizing the bank, but will also take firm steps to avoid confusion. He added that the government's aim was to keep the impact at a minimum, and he believes that markets would react calmly given the protection of all deposits. While the government has yet to release numbers as to the cost of the bailout, private forecasts expect it to cost of 1 trillion yen. The FSA inspection of Ashikaga bank revealed that the capital adequacy ratio stood at minus 3.7% and that liabilities exceeded assets by 102.3 bln yen, as of the end of September.

Data released earlier showed that Japan's manufacturing PMI hit a record high at 56.4 in November, up from 55.6 a month earlier. The output index jumped to 59.5 from 58.7 in October, while the new orders index rose to 61.4, up from 60.9. The report slightly downplayed yen strength, saying that while the recent appreciation of the yen to three-year highs adversely affected export growth, the rate helped to reduce raw material prices during the month by lowering the cost of imported inputs.

Dollar/yen failed to surpass the 110-mark, having since backed off to 109.75. Resistance starts at 110, followed by 110.30 and 110.70. Additional ceilings will emerge at 111, followed by 111.47 - the high from November 3 and 112. Losses will be tempered at 109.65, backed by 109.30 and 109. Subsequent floors are seen at 108.60, followed by 108.30 and 108.

Cable edges to fresh 5-yr high

Cable bounced higher to 1.7248, its highest level in five-years. Interim resistance is eyed at 1.7250, followed by 1.73 and 1.7330. Further gains will target 1.7350 and 1.7375. Meanwhile, support starts at 1.7225, backed by 1.72 and 1.7175. Additional losses will find floors at 1.7130, backed by 1.71 and 1.7070.

USDCHF

The pair will find interim support at 1.2870, followed by 1.2780 and 1.27. Subsequent floors are eyed at 1.2650 and 1.26. On the upside, gains will find resistance at 1.3085, followed by 1.32 and 1.3250. Subsequent ceilings are seen at 1.3295 and 1.3325.

USDCAD

USDCAD encounters resistance at 1.3040, followed by 1.31 and 1.3130. Subsequent ceilings are eyed at 1.3170, followed by 1.32 and 1.3250. On the downside, losses will be curbed at 1.2950, followed by 1.29 and 1.2865. A move lower will target 1.2820 and 1.28.

AUDUSD

Australia's current account deficit in Q3 was slightly larger than expected, at A$11.94 bln, versus A$11.85 bln a month earlier. The net exports impact on Q3 GDP was at minus 0.5%, compared with estimates of a 0.1% rise. Meanwhile, the key highlight from Australia this week will be the RBA's December monetary policy meeting, with the announcement scheduled for Tuesday 5:30 PM EST. It is worth noting that of 22 economists polled, 19 expect the RBA to hike its benchmark rate by 25-bp to 5.25%. Recall that the RBA surprised the markets with an unexpected 50-bp hike, thus propelling the Aussie against the greenback.

The pair inched up higher, climbing to 72.50. Interim resistance is seen at 72.65, followed by 73 and 73.40. Additional gains will target 73.80 and 74. Losses will encounter support is seen at 72, followed by 71.60 and 71.20. A breach below will find subsequent floors at 71, followed by 70.65 and 70.20.

November 30, 7:00 PM: EUR/$..1.2002 $/JPY..109.81 GBP/$..1.722 $/CHF..1.291 AUD/$..0.7238 $/CAD..1.298

Japanese & Australian Trading Preview by Korman Tam

At 6:30 PM Japan October overtime pay (exp n/f, prev 4.7%) At 7:30 PM Australia November AiG Manufacturing PMI (exp n/f, prev 57.5) Australia Q3 Current Account Deficit (exp A$11.85 bln, prev A$12.686 bln) Australia Q3 Current Account Deficit % of GDP (exp 6.2%, prev 6.7%) Australia Q3 Inventories, real growth (exp 0.6%, prev 1.3%) Australia Q3 Company gross operating profits (exp 4.0%, prev -6.9%)

The dollar has edged up slightly from last week's lows against the majors heading into the Asian session, trading near 1.1970 versus the euro and the 1.72-level against the sterling. With recent currency moves disregarding upbeat US economic data, this week's barrage of reports may prove no different. The key highlights from the US calendar consist of manufacturing and non-manufacturing ISM, productivity, durable goods orders, and more importantly, the November jobs report. Traders will also focus on central bank meetings, including the Reserve Bank of Australia, the European Central Bank and the Bank of England. Among the banks, only the RBA is forecasted to raise its benchmark rate, following November's surprise 50-bp hike with another lift of 25-bp to 5.25%.

The greenback's weakness, in large part, can be attributed to lingering geopolitical fears. Amid escalating violence in the Middle East, markets have grown increasingly risk averse in holding dollars, as evidenced by last week's sharp sell-off despite robust US data pointing toward an accelerated US economic recovery. Fighting continued in Iraq over the weekend, raising the death toll of coalition troops in November to 100, larger than that at the height of the war in March or April.

Banking worries resurface in Japan

Over the weekend, the Japanese government took action to nationalize Ashikaga Bank, pledging to inject public funds to bailout the troubled bank. Japan PM Koizumi said that the government was temporarily nationalizing the bank, but will also take firm steps to avoid confusion. He added that the government's aim was to keep the impact at a minimum, and he believes that markets would react calmly given the protection of all deposits. While the government has yet to release numbers as to the cost of the bailout, private forecasts expect it to cost of 1 trillion yen. The FSA inspection of Ashikaga bank revealed that the capital adequacy ratio stood at minus 3.7% and that liabilities exceeded assets by 102.3 bln yen, as of the end of September.

Dollar/yen has edged up slightly, climbing to 109.85. Resistance starts at 110, followed by 110.30 and 110.70. Additional ceilings will emerge at 111, followed by 111.47 - the high from November 3 and 112. Losses will be tempered at 109.65, backed by 109.30 and 109. Subsequent floors are seen at 108.60, followed by 108.30 and 108.

Aussie buoyed ahead of data barrage and RBA

This week will see a slew of Australia economic reports, including November manufacturing PMI, Q3 current account balance, Q3 inventories, October retail sales, November Performance of Services Index (PSI), Q3 real GDP, and the October trade balance. The key highlight from Australia this week, however, will the RBA's December monetary policy meeting, with the announcement scheduled for Tuesday 5:30 PM EST. It is worth noting that of 22 economists polled, 19 expect the RBA to hike its benchmark rate by 25-bp to 5.25%. Recall that the RBA surprised the markets with an unexpected 50-bp hike, thus propelling the Aussie against the greenback.

Resistance for the pair is eyed at 72.65, followed by 73 and 73.40. Additional gains will target 73.80 and 74. Losses will encounter support is seen at 72, followed by 71.60 and 71.20. A breach below will find subsequent floors at 71, followed by 70.65 and 70.20.

EURUSD

The euro continued to hover near the 1.20-mark versus the dollar heading into the week. A breach above will target 1.2040, followed by 1.2060 and 1.21. Subsequent ceilings are seen at 1.2150 and 1.22. On the downside, interim support starts at 1.1975, followed by 1.1925 and 1.19. Additional floors are eyed at 1.1850, followed by 1.18 and 1.1760.

Meanwhile, EURJPY remained buoyed in early Monday trading, hovering near 131.75. Interim resistance is seen at 131.85, followed by 132 and 132.30. Additional gains will target 132.80, followed by 133.15 and 133.45.

November 28, 3:50 PM: EUR/$..1.1985 $/JPY..109.56 GBP/$..1.7207 $/CHF..1.2913 AUD/$..0.7238 $/CAD..1.299

Black Friday Gives no Thanks to Dollar by Ashraf Laidi

The dollar's downfall entered a new chapter today as it hit the $1.20 against the euro for the first time in the 5-year life of the single currency. The dollar damage, however, was not confined to the euro but all the major currencies, sinking to fresh 10-yearl lows against the Canadian dollar and 5-year lows against the sterling. While thin trading volumes following Thanksgiving Holiday proved a factor in accelerating the dollar's woes, the currency's decline is likely to extend into the following week.

The dollar's woes continue to be highlighted by it failure to respond to this week's raft of impressive data. An upward revision in Q4 GDP to a fresh 19-year highs, a record breaking figure in consumer confidence and the third best figure in home sales failed to extend the dollar's gains failed to prop the dollar. Neither did Wednesday's releases showing jobless claims at 3-year lows, soaring regional manufacturing activity to 9-year highs nor durable goods orders posting their largest increase in 15-months, help the greenback. But the muted reaction was not solely a currency phenomenon. US stocks also failed show any notable gains on the data.

The dollar's woes are especially facilitated by the Federal Reserve's blitzing of the message that US rates will remain at their current lows for some time, thus prompting investors to abandon low yielding US assets in favor of their higher-yielding equivalents in Australia, Canada, Britain and the Eurozone. Yields on 2 government securities in these nations are 5.7%, 4.5%, 3.1% and 2.8% respectively, compared to 2.0% in the US.

EURUSD Holds on Near $1.21

The euro held firmly to its newly acquired figure of $1.20 after the Eurozone economic sentiment index rose to 95.9 in November. Talk of option-driven selling triggering several stops above $1.20 is expected to elevate the pair further above the figure.

Reports by London-based newspaper The Independent that giant financiers George Soros and Warren Buffett were bearish on the dollar further damaged the depressed currency.

Thin post-holiday trading volumes left little resistance to the rising euro, especially during the increasingly noticeable silence by European officials in the face of the currency's appreciation.

EURUSD faces preliminary resistance at 1.1990 followed by 1.2030 and 1.12070. Medium term resistance stands at $1.22 last hit on Oct 1998 high in synthetic terms. Support starts at 1.1970 backed by 1.1935-40 and 1.1890.

Cable at Fresh 5-year Highs

Pound Sterling found no difficulty in participating in the dollar pounding as it hit a new 5-year high at $1.7241. This week's Q3 GDP revision to 0.7% from 0.6% and next week's Bank of England meeting is keeping sterling bears on the sidelines to avoid any additional rallies. Although the BoE is unlikely to raise rates next week, the possibility of a tightening following last month's rate hike looms near. Next week's manufacturing and services sector surveys from Britain are also expected to show continued improvements, building on last month's 3-year highs. And with the Federal Reserve reiterating its case for keeping rates low in contrast with the Bank of England's hawkish policy stance, traders are more likely to reward sterling on a yield basis than rush into dollars on relative growth basis.

Cable's strength was underlined by the fact that it ended the session few pips near its latest 5-year high of 1.7241. Further gains see resistance at 1.7270 and 1.7320. A retreat sees support at 1.7180, backed by 1.7130 and 1.7050.

USDJPY Shuns Trend on Intervention Fears

USDJPY stood out of the rest of the dollar pairs amid the latest Ministry of Finance showing 1.6 trillion yen spent by Japanese authorities this month to sell yen against the dollar. Although the data stood below the prior month's record numbers, it reaffirmed Tokyo's resolve to stand against excessive yen strength, which prompted traders to stay away from selling dollars against the Japanese currency.

USDJPY resistance starts at 109.65-70-the trend line resistance extending from the 111.47 high to the 110.02 high. Subsequent gains seen tempered at the 2 week high of 110.30 and 111.50. Support seen at 108.40, followed by 107.85-90 and 107.45.

CAD Hits 10-year Highs Aided by GDP Recovery

The Canadian dollar dragged its US counterpart to a new 10-year low of 1.2930. A 1.1% rise in Q3, following a 0.7% drop in Q2 was principally boosted by a 5.7% rise in domestic demand. Recall that the Q2 contraction was a result of blackouts and mad cow disease.

The last leg of the US dollar damage occurred shortly before the NY session when the pair tumbled to 1.2930. The recovery towards the 1.2990-00 figure seems proved unsustainable and a renewed decline is seen recalling the 1.2950 figure. A breach below it sees support at 1.29, followed by 1.2870 and 1.2850. Upside capped at 1.3040, 1.31 and 1.3160.

November 26, 4:30 PM: EUR/$..1.1939 $/JPY..108.98 GBP/$..1.7126 $/CHF..1.292 AUD/$..0.7232 $/CAD..1.3032

Dollar Dims Despite Sizzling US Data by Ashraf Laidi

It was another case of deepening dollar sell-off ensuing in the face of an overwhelmingly strong raft of US economic data. Jobless claims falling to 3-year lows, regional manufacturing activity index at 9-year high and durable goods orders posting their largest increase in 15-months, meant there was more than pre-thanksgiving holiday to the dollar's damage. Equity indices' failure to rally despite the data suggest that geopolitical concerns continue to be an issue.

Markets did witness a scare on news of six New York city subway employees were being treated after they were exposed to unknown fumes. The dollar dropped briefly before it was reported that the terrorist activity was not a factor. The geopolitical factor pushed up gold to a fresh 7 1/2 year high at $402.

US Data Point to Broadening Strength and Fed Approves

The day's most notable data were the 3.3% rise in durable orders last month, which was the highest gain in 15 years.

On the jobs front, weekly jobless claims fell by 11,000 to 351,000, falling to another pre 2001 recession low. The 4-week average fell to a 33-month low of 358,750. In a more overlooked fact, the prior week's jobless claims were revised up by 7,000

Separately, the Chicago purchasing managers' index hit a 9-year high, rising to 64.1 in November from 55 the previous month. It was the survey's seventh consecutive month of expansion. The new orders index also shot up to a 9 yeah high.

The University of Michigan's final consumer sentiment index shot up to 93.7 in November from October's 89.6. The survey follows yesterday's release from the conference board showing record high consumer confidence in October.

The Fed's Beige Book saw continued broadening economic expansion; stabilizing labor markets after weakness as several areas have had slowing layoffs. Virtually all Fed districts reported concerns on health care costs. Retail sales rose in majority of areas, holiday sales expectations are positive. Factory activity seen up in most Fed districts, but few employment gains seen inn

The dollar pared Monday's gains and proved unfazed by an impressive showing of US data. An upward revision in Q4 GDP to a fresh 19-year highs, a record breaking figure in consumer confidence and the third best figure in home sales failed to extend the dollar's gains. The dollar's muted reaction suggests once again that yield differentials are more material than growth differentials, especially after all but one of the Fed's 12 FOMC members hinted last week that rates would remain low. The dollar's move are also another illustration of currency markets' dollar buying on the rumor and sell-on the fact. Recall that dollar did rally significantly last month ahead of the advanced Q3 GDP figure, only to reverse those gains on the data release.

EURUSD Hammers Dollar Despite Data

In addition to the assault waged against the dollar, the euro had a stellar day against the sterling and the yen. The single currency mounted another attack on dollar ignoring the flood of impressive US economic numbers. The news of NY subway workers being treated for exposure to unknown fumes fuelled terrorism fears and catapulted the euro past the $1.19 level. A report from an Arabic-language newspaper carrying statements from what it says to be Al Qaida warning of imminent attacks on the US has also kept traders further away from the dollar.

EURUSD faces resistance at $1.1960 followed by 1.1990 and 1.2030. Support starts at 1.1880 backed by $1.1820. Further downside seen stabilizing at 1.1750-the 38% retracement of the 1.1976-1.1374 rise. Further selling seen stabilizing at 1.1650 and 1.1620.

USDJPY Extends Sub-110 Retreat

The extent of the dollar damage occurred in mid morning NY trade, pulling the pair by nearly a full yen from its 109.76 session high. Separately, the yen was favored by news that Merrill lynch has lowered its USDJPY forecast to 90 from 100 for next year.

Further yen gains could ensue in thin Tokyo trading on Thursday after a Japanese official has just stated that Japanese could retaliate by raising tariffs on $458 million worth of US products if Washington does not lift its steel tariffs.

USDJPY support seen at 108.40, followed by 107.85-90 and 107.45. Preliminary resistance starts at 109.20 followed by 109.80 and 110.35-40.

Cable Hits New 5-year Highs

Sterling breached 1.71 level for the first time in 5 years on a combination of dollar-wide damage and favorable growth news. Britain's Q3 GDP was revised up to 0.7% from 0.6%, while the Organization of Economic Cooperation and Development predicted Britain to grow by 2.75% next year and 3.0% the following year. The growth assessments led economists to reason that a near-term rate hike by the Bank of England is imminent. And with the Federal Reserve reiterating its case for keeping rates low in contrast with the Bank of England's hawkish policy stance, traders are more likely to reward sterling on a yield basis than rush into dollars on relative growth basis.

Cable faces resistance starts at 1.7145, followed by 1.7170 and 1.7210. Support starts at $17086 followed by 1.7020 and 1.6945-50. Further losses seen supported at 1.6880 and 1.6820.

11/26/2003 7:00 AM: EUR/$..1.1840 $/JPY..109.30 GBP/$..1.7010 $/CHF..1.3090

Traders Add Dollar Shorts Ahead of the Holidays by Jes Black

At 8:30:00 AM US Jobless Claims (exp 365k, prev 355k) US Oct Durable Goods (exp 0.7%, prev 1.1%) US Oct Personal Income (exp 0.4%, prev 0.3%) US Oct Personal Spending (exp 0%, prev -0.3%) At 9:50:00 AM US Nov Univ of Mich Sentiment (final) (exp 94.0, prev 93.5) At 10:00:00 AM US Nov Chicago PMI (exp 56.4, prev 55.0) At 2:00:00 PM US Fed Beige Book (exp n/f, prev n/f)

The dollar slid on Wednesday as it failed to rally alongside the stock market overnight following a better than expected revision to Q3 GDP and a higher than anticipated consumer confidence report. Stocks rose sharply on Monday in anticipation of the data and followed through on the reports but sold off before the close, ending mixed on the day. With stocks now trading along the underside of previous trendline support the chance for a deeper correction exists if the market cannot attain new highs, which lay 1% away. Faliure here could help push the dollar lower in the coming weeks.

Data today is expected to show durable goods orders rose for the fourth consecutive month in October, up 0.7%. Jobless claims are seen holding near 3 year lows while new home sales are expected to hold near record rates of about 1.14 million. Other reports are to show that personal income rose 0.4% in October while spending was flat. Manufacturing in the Chicago region is seen rising to 56.4 from 55.0 and the final release of the UoM sentiment survey is seen rising to 94.0 from 93.5 in October. Finally, the Fed will release its anecdotal Beige Book, a report from the Fed's 12 regional banks on the economy.

Bond markets close early today and all markets are closed on Thursday for the Thanksgiving holiday. While European and Asian markets will remain open, the rest of the week should see thin trading conditions and possibly little movement overall.

Fed Rates Keep Dollar Under Pressure

Last week, Fed Chairman Greenspan, along with a chorus of other Fed officials, sent the message that rates would be kept low as inflation was not a concern. But with the dollar in decline for the past two years international investors may feel that they are not being compensated enough for the currency risk through interest rates, which in turn may continue to pressure the dollar with traders now anticipating a move to the 1.24 level before year's end.

EUR/USD

The euro rebounded from its overnight low of 1.1755 to a session high of 1.1850. This week we said that if the euro did mark an intermediate top at 1.1975, then key support is now seen at 1.1745 and 1.16, which may mark the next significant buying area. Since the euro did not fall below technical support at 1.1750/25 it may mean that the correction is over, now targeting new multi-year highs above 1.20.

USD/CHF

The dollar fell from overnight highs around the 1.32 mark to a session low of 1.3090. Yesterday we said that further corrective gains from last week's lows of 1.2916 may be in store if the dollar can maintain above 1.31 and rally past resistance at 1.3250 and 1.33. But the dollar was rejected from this technical resistance and new lows are likely to be had as the Swiss franc follows the euro higher in the medium term. Support is now seen at the previous high of 1.3090 and then 1.3050.

GBP/USD

Sterling continues to test trendline support from the Nov low of 1.6565, now at 1.695, and remains in a tight range with support at 1.69 and resistance at 1.71. Two weeks ago we warned that the pound now appears boxed in by the BoE, as another rate rise would slow the nascent recovery, while delaying an impending hike would counter interest rate expectations that have already been priced into sterling. A close below 1.69 would be doubly significant as it would now be below trendline support and may mean that sterling put in a medium term top at last week's 5-year high of 1.7090. But until one of these levels is broken the uptrend remains intact, albeit with large momentum divergences.

USD/JPY

The Nikkei rallied again on Wednesday, closing up another 1.5% at 10144 after briefly trading below the 10,000 level last week and causing concern for a renewed decline. The dollar was not phased by the Nikkei's advance and held onto its recent gains above the 109 level overnight. Overnight the dollar was rejected by the 110 level which has proved elusive these past two months. But the dollar remains in a corrective uptrend since reaching a new 3-year low of 107.58 last week. Resistance is seen at 110. Below 109 targets key support at 108.60. The inability to hold above 108.60 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106.lows.

USD/CAD

Monday's gains in USD/CAD stopped short of key resistance at 1.3250/1.33 and subsequent selling has taken the dollar to the 1.31 level this morning. While still in a nascent uptrend, resistance at 1.3120 is key. Failure here and the dollar could target new 10-year lows below 1.2951. Yet, from a technical standpoint the US dollar's decline against the CAD should be nearing an end. Below trendline support at 1.3030 would likely mean new lows. But if that is the case they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast earlier this month.

AUD/USD

The Australian dollar continues to hover below the 0.72 mark and above its uptrend support at 0.7160. Traders should watch for a resolution in the coming days with a break back above 0.7220 likely meaning new highs above 0.7265 are in store. But given that the Aussie has rallied for 12 consecutive weeks, and that the pair has now reached our targeted resistance of 0.72/0.74, the Aussie appears vulnerable to a larger correction soon, targeting the 0.71 level and then 0.6950.

November 26, 2:50 AM: EUR/$..1.1835 $/JPY..109.44 GBP/$..1.7019 $/CHF..1.3118 AUD/$..0.7184 $/CAD..1.3112

European Forex Trading Preview by Korman Tam

At 4:00 AM E-12 September Current Account (exp 6 bln euros, prev 5 bln euros) At 4:30 AM UK Q3 GDP 2nd release (exp 0.6%, prev 0.6%)

The majors traded narrowly in the early Wednesday session, as thin trading ahead of the Thanksgiving holiday this week prevailed. The dollar edged up slightly versus the yen in Tokyo, climbing to 109.60, while it remained confined to a narrow range versus the euro, holding steady just above the 1.18-level.

Meanwhile, overnight data revealed that the US economy grew at its strongest pace in nearly two decades in Q3, upwardly revised to 8.2%, up from the preliminary 7.2%. Separately, the conference board's consumer confidence index jumped to a near one-year high at 91.7. Nevertheless, the strong data failed to provide the greenback further impetus.

In other news, there was speculation earlier that Russia was contemplating selling its oil output in euros rather than dollars. Russia, the world's second largest crude oil exporter has sustained losses in profits due to its exposure to dollar weakness.

USDJPY

Japanese government officials stepped up their jawboning earlier in the session. The MoF's Zembei Mizoguchi reiterated that the US economic recovery remains greater than that of other areas, thus the strength of its economy should also be reflected in exchange rates. Meanwhile, FinMin Tanigaki said the government had not asked the BoJ for additional intervention funds, adding that Japan has sufficient funds for intervention.

Dollar/yen faces resistance at 109.30, followed by 109.65 and 110. A breach above will target 110.30, backed by 110.70 and 111. Support is seen at 108.60, backed by 108.30 and 108. Subsequent floors are seen at 107.85, followed by 107.25 and 107.

EURUSD

The euro climbed higher, rising to 1.1840. Interim resistance is seen at 1.1850, followed by 1.19 and 1.1930. A breach above will target 1.1975, backed by 1.20 and 1.2040. On the downside, support is eyed at 1.18, followed by 1.1760 and 1.1725. A move lower will find subsequent support at 1.17, followed by 1.1650 and 1.1620.

EURJPY edged up and will face resistance at 130, followed by 130.50 and 131. Subsequent ceilings will emerge at 131.30, backed by 131.85 and 132. Support begins at 129.65, followed by 129.30 and 129. Subsequent floors are eyed at 128.50, backed by 128 and 127.40.

Cable

Cable faces resistance at 1.7050, followed by 1.7070 and 1.71. Additional gains will target 1.7130, backed by 1.7175 and 1.72. On the downside, interim support begins at 1.70, backed by 1.6970 and 1.6950. A breach below will target 1.69, followed by 1.6840 and 1.68.

USDCAD

USDCAD will face resistance at 1.3130, followed by 1.3170 and 1.32. Additional gains will target 1.3250 and 1.33. Losses will be tempered at 1.31, followed by 1.3050 and 1.30. Subsequent floors are seen at 1.2950, followed by 1.29 and 1.2865

AUDUSD

The pair failed to break above 0.72. Support is seen at 71.60, backed by 71.20 and 71. Additional losses will target 70.65 and 70.20. Gains will face resistance at 72, followed by 72.30 and 72.65. Subsequent ceilings are seen at 73, followed by 73.40 and 73.80.

USDCHF

Resistance for USDCHF starts at 1.32, followed by 1.3250 and 1.3295. Additional gains will target 1.3325 and 1.34. Support is seen at 1.3070, followed by 1.30 and 1.2870. Subsequent floors are eyed at 1.2780, followed by 1.27 and 1.2650.

November 25, 4:00 PM: EUR/$..1.1783 $/JPY..109.38 GBP/$..1.6978 $/CHF..1.3184 AUD/$..0.718 $/CAD..1.3101

Dollar Unimpressed by US Data Strength by Ashraf Laidi

The dollar pared Monday's gains and proved unfazed by an impressive showing of US data. An upward revision in Q4 GDP to a fresh 19-year highs, a record breaking figure in consumer confidence and the third best figure in home sales failed to extend the dollar's gains. The dollar's muted reaction suggests once again that yield differentials are more material than growth differentials, especially after all but one of the Fed's 12 FOMC members hinted last week that rates would remain low. The dollar's move are also another illustration of currency markets' dollar buying on the rumor and sell-on the fact. Recall that dollar did rally significantly last month ahead of the advanced Q3 GDP figure, only to reverse those gains on the data release.

Strong Growth, Soaring Confidence Make no Difference

US Q3 GDP was revised to 8.2% from 7.2%, reaching a fresh 19-year high amid a pick up in expenditures by the government and businesses. The decreasing rate of inventories' contraction from to $14.1 billion rate from $35.8 billion in the advanced estimate was instrumental in the sharp growth revision. Although the increase in consumer spending slipped to from 6.4% from 6.6%, business fixed investment more than made up for the rise pushing up 16.7% from 14%

In a more recently updated data, the Conference Board's consumer confidence index hit a record high at 91.7 for the month, overshooting consensus forecasts of 81.7. The index showing those who fell it's hard to find a job fell to 29.5 from 33.7, while the current conditions index shot up to 80.1 from 67 in October.

Meanwhile, existing home sales fell to 4.9% in October at 6.35 million, albeit still registering the third largest number of all times.

Euro Edges Higher

The euro recovered from losses sustained in the early European session following a decision by European finance ministers to grant a reprieve to France and Germany on their obligation to meet growth and stability pact's fiscal requirements. Although the relief prompted much anger and dissent from Eurozone finance ministers (and will most likely evoke disappointment from the European Central Bank), markets were distracted by the rise in Germany's Ifo survey on business confidence.

The negative impact of the finance minister's decision to grant a reprieve is rationalized by the notion that further delay of Eurozone fiscal reforms shall only highlight the region's structural deficiencies and prevent nation's from establishing vital fiscal easing in the long run. But the advantages of avoiding a stalemate on what many deem to be an inflexible pact is a positive for the euro.

EURUSD faces initial resistance at $1.1820, followed by more substantial pressure at 1.1860 and 1.19. Support starts at 1.1750-the 38% retracement of the 1.1976-1.1374 rise. Further selling seen stabilizing at 1.1650 and 1.1620.

USDJPY Extends Sub-110 Retreat

USDJPY pared all of the gains posted in European trade, which were initially aided by thin market conditions during a Japanese market holiday. But Japanese exporter-led selling sent the dollar back lower below the 109.50 figure. The dollar's rise to the 110-level sees was an especially aggressive move whose sustainability is increasingly doubted by traders. As the US economy continues to show further signs of a recovery, global investors will anticipated positive spillover effects into Japan, thus prompting further accumulation of Japanese shares.

USDJPY sees support at 109.20 backed by 108.70-75 and 108.40. Further selling seen stabilizing at 107.85-90 and 107.45. Preliminary resistance held at 109.80, 110.35-40 and 111.20.

USDCAD Drops to 1.31

The dollar finished lower against the CAD as traders engaged in wide selling of the currency to square their positions from Monday's gains. More currency talk circulated in Canada, this time from the nation's Finance Minister John Manley who said that the pace of the rising loonie was a concern and not the direction. In its most explicit statement on the currency to date, the Bank of Canada said last week it would consider cutting interest rates to counter the economic impact of further currency strength. While the central bank has been reiterating its concern over the impact of the rising loonie on the economy, those statements mark the strongest indication of the central bank's monetary policy intention from the currency's move.

Yesterday's release of the 0.8% decline in September retail sales could also further push the BoC into considering easing policy.

USDCAD sees support at 1.3080, backed by 1.3050 and 1.2985-90. Resistance starts at 1.3140-the 38% retracement of the 1.3431-1.2951 decline, followed by 1.32 and 1.3250.

Cable Crawls Higher

Sterling stood unfazed by the dollar's impressive Q3 GDP showing. With the Federal Reserve reiterating its case for keeping rates low in contrast with the Bank of England's hawkish policy stance, traders are more likely to reward sterling on a yield basis than rush into dollars on relative growth basis.

Cable supported at 1.6930 backed by key support at 1.6890-the 28% retracement of the 1.6566-1.7057 rise-as well as the trend line support from thru the 1.6642 low. Subsequent losses could extend to next target at 1.6830. Upside capped at 1.7020, 1.7060 and 1.71.

November 25, 7:00 AM: EUR/$..1.1778 $/JPY..109.84 GBP/$..1.6972 $/CHF..1.3193 AUD/$..0.7185 $/CAD..1.3153

Dollar Up as Markets Await More Signs of Recovery by Jes Black

At 8:30:00 AM US Q3 GDP (rev) (exp 7.6%, prev 7.2%) Canada Oct Leading Indicator (exp 0.5%, prev 0.7%) At 10:00:00 AM US Nov Consumer Confidence (exp 85.0, prev 81.1) US Existing Home Sales (exp 6.5 mln, prev 6.69 mln)

The dollar held onto overnight gains against the majors as traders braced for more signs of an economic recovery at hand. Stocks soared on Wall Street following Monday's sharp rebound in the dollar at the start of London trade. Now traders await confirmation with the first revision to Q3 GDP expected to rise 7.6%-7.8% from the initial 7.2% reported. This would be the fastest growth since 1984 and many economists have hailed this as the long awaited recovery, although this is now widely discounted by the markets. The November consumer confidence figure is also expected to rise to 85 from 81.1 while existing home sales are not cooling off much after record growth this year. Tomorrow's data include personal income and spending, the Chicago PMI and the Federal Reserve's beige book.

Dollar Rebounds on Hopes of Sustainable Recovery

The dollar, like the economy of late has staged an impressive rebound, but it has not yet signaled a sustainable recovery. Still weighing on the dollar was the US Treasury department's report last week of a 90% decline in foreign capital inflows into the US in September. While one month does not make a trend, the Fed's data on M3 also show the first contraction in money supply in nearly a decade which could spell trouble for the financial markets.

More Sanctions?

the WSJ reports today that the U.S. Commerce Department accused some Chinese companies of dumping television sets in the U.S. and recommended stiff penalties on their products. Last week the federal government decided to place new import quotas on its second biggest lender, China. The irony was not lost on the markets, which leaves the dollar vulnerable in the medium term.

Stocks Must Rally or Face More Profit Taking

Stocks rose sharply on Monday in anticipation of today's GDP and consumer confidence numbers. But yesterday's rally carried the S&P 500 to the 61.8% retracement of its most recent decline from 1063 and to the underside up previous trendline support. Stocks did rebound off of the 50-day MA but while it trades below trendline support the chance for a deeper correction exists if the market cannot attain new highs, which lay 1% away. Meanwhile, with the Sox index continuing to lead the markets, today's report in the WSJ that spot prices have fallen again for DRAM chips used in personal computers, means weaker pricing power may derail the high expectations placed on these stocks.

German Ifo Rises to 33-Month High

Germany's much watched Ifo survey rose to a 33- month high of 95.7 in November from 94.3, as the economy was boosted by rising exports. This was the seventh consecutive month of gain indicating that the country's nascent economic recovery is likely to gather speed going into 2004 if the euro does not rise much beyond 1.20 and the US recovery can maintain its momentum without new stimulus being added.

The current conditions rose to 83.2 from an upwardly revised 81.2 in October. Business expectations rose to 108.7 from 107.9 in October, up for the seventh straight month and reaching the highest level since February 2000.

French consumer spending also rose 1.6% in October better than the 0.9% decline analysts expected, which led to The ECB's Trichet saying today he sees firm evidence that the euro zone's economic recovery is speeding up. But he also pressed Germany and France over their budget deficits.

Funny Paradox as France and Germany Avoid Sanctions

Germany and France agreed to a budget cut of around 0.6% and 0.75% respectively of next year's GDP and about 0.5% of GDP the year after, as the countries grapple with the 3% debt to GDP cap of the Growth and Stability pact. Despite the effort, the European commission was hoping for more.

Spanish PM Aznar called the concession a funny paradox where those who set the rules do not play by those rules. Aznar warned that France and Germany could undermine the EU's credibility if they did not take more action to curb spending.

EUR/USD

The euro held around yesterday's low of 1.1755 but did not fall below technical support at 1.1750/25 following yesterday's intense selling after support at 1.19/1.1860 was breached, which triggered stop loss sales to a session low of 1.1755. Last week we warned that extreme bullishness in the euro may mean that too many longs are crowding out potential for further gains, but that any setbacks from the 1.20 level should find support around 1.17/1.18 as traders now anticipate a move to the 1.24 level before year's end. If the euro did mark an intermediate top at 1.1975, then key support is now seen at 1.1745 and 1.16, which may mark the next significant buying area.

USD/CHF

The dollar hovered near the 1.32 mark after the dollar broke free of downtrend resistance on Monday. Further corrective gains from last week's lows of 1.2916 may be in store if the dollar can maintain above 1.30 and rally past resistance at 1.3250 and 1.33. But new lows are likely to be had as the Swiss franc follows the euro higher in the medium term.

GBP/USD

Sterling continues to hold in a tight range with support at 1.69 and resistance at 1.71. Two weeks ago we warned that the pound now appears boxed in by the BoE, as another rate rise would slow the nascent recovery, while delaying an impending hike would counter interest rate expectations that have already been priced into sterling. A close below 1.69 may mean that sterling put in a medium term top at last week's 5-year high of 1.7090. But until one of these levels is broken the uptrend remains intact, albeit with large momentum divergences.

USD/JPY

Stronger bank profits for the first fiscal half helped those stocks higher today with the Nikkei closing up 1% at 9,960.20 after briefly trading above the 10,000 level. The dollar was not phased by the Nikkei's advance and instead added to its recent gains after it held above the 109 level overnight. The pair is now testing the 110 level which has proved elusive these past two months. But the dollar remains in a corrective uptrend since reaching a new 3-year low of 107.58 last week. Resistance is seen at 110. Below 109 targets key support at 108.60. The inability to hold above 108.60 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106.lows.

USD/CAD

Monday's gains in USD/CAD stopped short of key resistance at 1.3250/1.33 but the subsequent profit taking held above 1.3150, meaning another attempt at this resistance is possible today. The Canadian dollar is succumbing to weakness after the Bank of Canada surprised markets last week by hinting of another rate cut, right when markets are now anticipating another possible rate hike in Australia. The BoC said that it may instead lower rates if the Canadian dollar's strength becomes a noteworthy drawback to growth.

With the dollar now holding above the previous spike high at 1.3160 this month's 10-year lows against the Canadian dollar at 1.2951 may mark an intermediate bottom or else the US dollar's decline against the CAD should be nearing an end. Below 1.3020 would likely mean new lows. But if that is the case they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast earlier this month.

AUD/USD

The Australian dollar slid lower with the price of gold today falling to $390. Given that the Aussie has rallied for 12 consecutive weeks, and that the pair has now reached our targeted resistance of 0.72/0.74, the Aussie appears vulnerable to a larger correction soon, targeting the 0.71 level and then 0.6950. But as long as the pair continues to hold above its month long trendline support at $0.7160 marginal new highs above 0.7265 may be in store this week.

November 24, 7:00 AM: EUR/$..1.1802 $/JPY..109.07 GBP/$..1.696 $/CHF..1.3134 AUD/$..0.7204 $/CAD..1.3083

Dollar Rebounds on Profit Taking ahead of Holidays by Jes Black

No Key Data

The dollar reversed early losses at the London open, rising to a session high of 1.1780 against the euro and triggering stop loss orders against the other European majors along the way. Japanese markets were closed today and in this holiday shortened week traders ma look to book profits from last week's sharp decline that sent the dollar to a series of multi-year lows.

Weighing most on the dollar was the Treasury department's report of a 90% decline in foreign capital inflows into the US in September. On the same day the government also decided to place new import quotas on its second biggest lender. The irony was not lost on the markets, which promptly sold off the dollar on the news.

Fed officials also chimed in on trade, the deficit and the dollar last week. But their key concern was the lack of inflation, which means rates are to be left a 4 decade lows. Currency traders have worried about these low returns in an environment of near zero savings rates, burgeoning twin deficits and future unaccounted liabilities to pensioners. The lack of compensation from record low interest rates should therefore keep pressure on the dollar for the near term.

Divergent Rate Expectation for Commodity Currencies

Commodity currencies were again the most enduring gainers with the Canadian dollar hovering around 10-year highs and the Australian dollar closing higher for the twelfth consecutive week. Yet while markets are now anticipating another possible rate hike in Australia, the Bank of Canada is signaling that it may instead lower rates if the Canadian dollar's strength becomes a noteworthy drawback to growth.

On Monday, gold fell back to $393 but the Australian dollar has so far managed to hold above $0.72.

Stocks Look Up after Profit Taking

US equity futures rose 50 points on the Dow to 9680, helping European bourses higher this morning. Traders will look for new clues this week after a strong bout of profit sent stocks lower in 5 of the past 7 sessions. Stocks have now broken below trendline support from this summers lows and are struggling to regain the 50-day moving averages or risk the chance for a deeper correction.

During the holiday-shortened week traders will look to a fair number of reports, including US consumer confidence, personal income and spending, the revision to Q3 GDP, the Chicago PMI and the Federal Reserve's beige book.

EUR/USD

The euro slipped below the 1.19 level again this morning, but this time it was more significant technically, as it marked trendline support from the Nov 7 lows at 1.1375. This time the selloff was not halted at 1.1860, which triggered stop loss sales to a session low of 1.1780. Last week we warned that extreme bullishness in the euro may mean that too many longs are crowding out potential for further gains, but that any setbacks from the 1.20 level should find support around 1.17/1.18 as traders now anticipate a move to the 1.24 level before year's end. If the euro did mark an intermediate top at 1.1975, then key support is seen at 1.1745 and 1.16.

USD/CHF

The dollar broke through resistance at the 1.30 level to a session high of 1.3170. Similar to the euro's decline, the dollar was testing downtrend resistance at this mark and has now recovered well from last week's lows of 1.2916. If the dollar can maintain above 1.30 a retracement higher to correct the decline from 1.38 is likely. Resistance is seen at 1.3170 and 1.3250. But new lows are likely to be had as the Swiss franc follows the euro higher in the medium term.

GBP/USD

Sterling fell back from new 5 year highs at 1.7090 reached on Thursday with trendline support at 1.7110 giving way this morning. Last week's volatility saw sterling struggle to overcome 1.69, then briefly trade above its previous 5-year high at 1.7075. Failure to hold the 1.6950 mark will target support at 1.69 and 1.6850.

USD/JPY

The dollar rose back above the 109 level, but has struggled to maintain its gains after reaching a new 3-year low of 107.58 last week. Key support is seen at 108.60, below which targets 108. The inability to hold above 109 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106.lows.

AUD/USD

The Australian dollar held near its new 6-year highs at 0.7265 and closed higher for the twelfth consecutive week. With gold attempting to break above $400 and the CRB index at 7-1/2 year highs, new peaks in the commodity currencies cannot be ruled out. But given that the Aussie has rallied for 12 consecutive weeks, and that the pair has now reached our targeted resistance of 0.72/0.74, the Aussie appears vulnerable to a larger correction soon

USD/CAD

The dollar broke through near term downtrend resistance this morning at 1.3060 and rallied to the 1.31 level. It is now holding above 1.3060 ahead of the US open and while the move from last week's 10-year lows against the Canadian dollar at 1.2951 may not be the bottom, the US dollar's decline against the CAD should be nearing an end. If new lows are reached they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast last week.

November 21, 7:00 AM: EUR/$..1.1869 $/JPY..108.76 GBP/$..1.7022 $/CHF..1.302 AUD/$..0.7209 $/CAD..1.3083

Dollar Up on Profit Taking after Volatile Week by Jes Black

No Key Data

The dollar tried to muster a recovery rally in afternoon London trade, looking to counter selling pressure at the key technical levels of 1.1870 against the euro and 0.72 against the Australian dollar. In all, the week was marked by volatility, taking the dollar to a series of multi-year lows. Commodity currencies were again the most enduring gainers with the Canadian dollar hovering around 10-year highs and the Australian dollar possibly looking to close higher for the twelfth consecutive week. But this could result in a bout of profit taking ahead of the weekend as traders look to cash in their gains.

In other news, gold jumped $4 to a session high of $397 after gold miner Barrick said it would no longer continue to hedge its production by selling gold futures short. The company has one of the largest hedgebooks in the industry and may mark a turning point in the 20 year bear market for bullion.

Stock Traders Fade Rally, Retail Investors Stick In

Mutual fund investors sent another $3.5 bln to their managers this week while corporate insiders have sold the rally since its June highs. A technical rebound from the 50-day MA was thwarted and Friday's high of 1063 in the S&P is the key resistance mark. The Nikkei also ended the week below the key 10,000 level which may mean more selling on Monday if the US markets fail to close above the 1030 level, which has so far limited this week's losses.

Germany Would Like a Stronger Dollar for Christmas

Raising concerns that the euro's advance may be too much too fast was German Chancellor Gerhard Schroeder today who said a rebound in the dollar would benefit Europe.

Germany squeaked out of recession last quarter as its exports rose 3.2% after declining 2.2% in Q3. But domestic demand slumped 1.6%, the biggest drop since early 1993, highlighting the need for export growth to continue. This in turn would necessitate a stabilization in the falling dollar, which Schroeder tacitly called for by stating "Nobody has an interest in a weak dollar.''

But his analysis that a stronger dollar would help the US by curbing American deficits was in stark contrast to the prevailing wisdom in Washington, which has distanced itself from any notion of a strong dollar policy as it seeks to quell the tide of rising imports.

Globalization Threatened

As we have explained before, US manufacturing has been in a decline since the 1970s when the US abandoned its policy of settling trade balances in gold and instead embarked on a dollar IOU policy of epic proportions. Similar situations have occurred for many global leaders in years past. On example was Spain's discovery of gold in the Americas, which was to make it the richest country in the world. But the discovery of easy money only led to increased imports, which then decimated its domestic industry while enriching its trade partners. It could be argued that the US has embarked on a similar course since the 1970s.

Fed Sees Low Inflation as Reason To Keep Rates Low

Overnight, Fed Chairman Greenspan, along with a chorus of other Fed officials, sent the message that rates would be kept low as inflation was not a concern. But the Fed's measure of inflation is not very reflective of what the consumer really pays. Instead, food and fuel are a major component of consumer price inflation, and looking at the CRB index prices are up 35% in two years. A two-year uptrend in prices can hardly be blamed on short term volatility.

Greenspan correctly highlighted the possibility that the colossal advance in globalization since the 1980s could be threatened by trade wars. But globalization did not really take off until the US made it possible to finance a growing trade imbalance, by abandoning the Bretton Woods accord. While often noted as the world's economic engine, the fuel has increasingly come from foreign savings, which the US consumes voraciously from willing lenders. As countries took advantage of the US willingness to run deficits, foreigners have become key lenders to the US consumption boom. Prior to closing the dollar for gold window in 1971 this vast amount of dollar reserves held overseas would have seemed unfathomable.

Therefore, under a system that actively encourages more consumption via cheap credit creation and deficit spending, achieving a textbook type of trade balance may not come without first cutting off the cheap credit tap. But since this is not an option, the Bush administration has sought out trade tariffs and quotas as the record amount of stimulus has still failed to revive the jobs market.

Mr. Greenspan accurately noted that a tit for tat trade war may end up causing greater harm to the precarious imbalances built up by the US. In the end, he said, "it will likely be the reluctance of foreign country residents to accumulate additional debt and equity claims against the U.S.

Japan Looks to Retaliate on Trade, China Less Sure

Japan said today it might put 30% tariffs on US steel as early as this year if the US does not rescind its tariff policy, which hurts Japanese steel exports. Japan could also raise tariffs on clothing and other items sensitive to the US.

This may mark an inflection point in global trade dynamics as both Japan and China are becoming increasingly more reliant on inter-Asian trade. Japan's exports to the rest of Asia rose for the 20th straight month to a record $21bn in October.

Meanwhile, the WTO warned China not to retaliate against US quotas fearing a trade war could affect the global recovery. While China canceled a delegation sent to puchase US goods this week, China's premier, Wen Jiabao, will travel to Washington in hopes of avoiding a trade row.

EUR/USD

The euro slipped below the 1.19 level again this morning on more profit taking, but was halted at 1.1860. Dow from its overnight peak of 1.1975, another attempt to take out this high cannot be ruled out as long as 1.1860 holds. Extreme bullishness in the euro may mean that too many longs are crowding out potential for further gains. But any setbacks from the 1.20 level should find support around 1.17/1.18 as traders now anticipate a move to the 1.24 level before year's end.

USD/CHF

The dollar rose back above the 1.30 level, up from this week's lows of 1.2916. If the dollar can maintain above 1.30 a retracement higher to correct the decline from 1.38 is likely. Key support is seen at 1.29 and until that is breached, a profit-taking rally may ensue, taking the dollar back to the 1.3250 level. But new lows are likely to be had as the Swiss franc follows the euro higher in the medium term.

GBP/USD

Sterling rallied to new highs at 1.7090 on Thursday but fell back to the 1.70 level this morning. This week has seen enormous volatility in the majors as sterling has struggled to overcome 1.69, then its previous 6-year high at 1.7075, which will now act as key resistance. Failure to hold the 1.70 mark will target support at 1.6950 and 1.69.

USD/JPY

The dollar struggled to hold above the 109 level after rebounding from a new 3-year low of 107.58 after some help from the Japanese monetary authorities this week. The inability to hold above 110 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106. However, if this were to coincide with a EUR/USD top around 1.24/26 then the dollar may very well find a bottom at these new lows.

AUD/USD

The Australian dollar looking to close higher for the twelfth consecutive week after reaching a new 6-year high of 0.7265 overnight. With gold attempting to break above $400, new highs in the commodity currencies cannot be ruled out. But given that the Aussie has rallied for 12 consecutive weeks, and the pair has now reached our targeted resistance of 0.72/0.74, the Aussie is vulnerable to a larger correction soon.

USD/CAD

The dollar broke through near term downtrend resistance this morning at .3060 and rallied to the 1.31 level. It is now holding above 1.3060 ahead of the US open and while the move from last week's 10-year lows against the Canadian dollar at 1.2951 may not be the bottom, the US dollar's decline against the CAD should be nearing an end. If new lows are reached they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast last week.

November 20, 10:30 PM: EUR/$..1.1903 $/JPY..109.04 GBP/$..1.7019 $/CHF..1.2993 AUD/$..0.7215 $/CAD..1.3023

European Forex Trading Preview by Korman Tam

At 3:00 AM Italy October Trade non-EU (exp n/f, prev 0.13 bln euros)

Currencies traded narrowly in the Tokyo session, with the dollar teetering around the 1.19-level against the euro and edging up slightly higher versus the yen to 109.35. Nevertheless, sentiment for the dollar remains weak given recent heightened geopolitical concerns stemming from the Middle East.

Meanwhile, optimism over the US economic outlook failed to provide the greenback with any fresh impetus. Earlier in the session, San Francisco Fed President Robert Parry reiterated that the US economy has further room for strong growth without inflation, adding that it is likely to experience robust growth in Q4 leading into 2004. Parry added that there were signs of life in the labor market, which should further support the economic expansion. His comments follow an upbeat showing in the US weekly jobless claims figure, which fell by 15k to 355k, and the less volatile 4-week average fell to its best level since February 2001 at 367,250.

USDJPY holds steady

Markets gave a muted response to earlier Japanese data, which saw a larger than expected gain in both the all-activities survey and tertiary sector survey. The September tertiary sector index exceeded expectations of a 0.5% rise, instead climbing 2.2% m/m. Meanwhile, the September all-industries index rose to 2.2% m/m, better than the expected 1.1% gain. The MoF's Vice FinMin Hayashi quelled market speculation that the BoJ would implement new measures to help finance government forex intervention. Hayashi stated that the government has ample funds to conduct forex intervention, adding that it was unnecessary to ask the BoJ for assistance.

The Bank of Japan left policy unchanged in its monetary policy meeting, saying the decision was unanimous. It also reiterated its stance to provide funds regardless of target in the event financial instability arises.

Dollar/yen faces resistance at 109.30, followed by 109.65 and 110. A breach above will target 110.30, backed by 110.70 and 111. Support is seen at 108.60, backed by 108.30 and 108. Subsequent floors are seen at 107.85, followed by 107.25 and 107.

EURUSD

The continued to trade near 1.19 in early Friday trading. Resistance is seen at 1.1930, followed by 1.1975 and 1.20. A breach above will target 1.2040, followed by 1.2070 and 1.21. Support begins at 1.19, followed by 1.1850 and 1.18. Further losses will target 1.1760, backed by 1.1725 and 1.17.

EURJPY will face resistance at 130, followed by 130.50 and 131. Subsequent ceilings will emerge at 131.30, backed by 131.85 and 132. Support begins at 129.65, followed by 129.30 and 129. Subsequent floors are eyed at 128.50, backed by 128 and 127.40.

USDCAD

Bank of Canada Governor David Dodge said the central bank would not hesitate to slash rates if it felt the Canadian dollar's strength would be detrimental to the economy. Dodge said that the loonie's appreciation was an important factor the BoC would be eyeing carefully. Moreover, he suggested that it would reduce rates if global demand starts to weaken. Yet, he also added that the world economy was showing somewhat stronger-than-expected recovery.

USDCAD will face resistance at 1.31, followed by 1.3130 and 1.3170. Additional gains will target 1.32, backed by 1.3250 and 1.33. Losses will be tempered at 1.30, backed by 1.2950 and 1.29. Subsequent floors are seen at 1.2865, followed by 1.2820 and 1.28.

Cable

Cable consolidated sideways in early Thursday trading, failing to recapture the 1.70-level. Support is seen at 1.1670, followed by 1.6950 and 1.69. Further losses will find support at 1.6840, followed by 1.68 and 1.6760. On the upside, resistance is eyed at 1.70, followed by 1.7050 and 1.7070. Subsequent ceilings are eyed at 1.71, backed by 1.7130 and 1.7175.

AUDUSD

The pair traded narrowly, yet remained buoyed above the 72-mark. Resistance is eyed at 72.65, followed by 73 and 73.40. Additional gains will target 73.80 and 74. Losses will encounter support is seen at 72, followed by 71.60 and 71.20. A breach below will find subsequent floors at 71, followed by 70.65 and 70.20.

USDCHF

USDCHF held steady near the 1.30-mark. Support is seen at 1.2870, followed by 1.2780 and 1.27. Subsequent floors are eyed at 1.2650 and 1.26. On the upside, gains will find resistance at 1.3085, followed by 1.32 and 1.3250. Subsequent ceilings are seen at 1.3295 and 1.3325.

November 20, 5:00 PM: EUR/$..1.1908 $/JPY..109 GBP/$..1.7042 $/CHF..1.2991 AUD/$..0.7215 $/CAD..1.3022

Dollar Fails to Rise Above Volatility by Ashraf Laidi

Mixed Data and False White House Alert

Dollar selling was once again the order of the day on a combination of geopolitical fears and uninspiring economic data. Although the dollar was relatively unfazed by the explosions in Turkey earlier this morning, the currency was temporarily hit by news reports that the White House had been evacuated after a blip on the radar was mistaken for a plane violating US Airspace. The dollar recovered all of those immediate losses but failed to end on a higher note.

Mixed news in US labor markets as the number of weekly jobless fell by a whopping 15,000 to 355,000. The more stable 4-week average fell to 367,250,hitting its lowest level since February 2001, a month before the official beginning of the 2001 recession.

The leading indicators index rose 0.4% in October, more than the 0.2% consensus forecast. 7 of the index' 10 components showed an increase, while declines were posted in the money supply, capital goods orders and consumer goods orders.

The Philadelphia Fed's survey of manufacturing sentiment fell to 25.9 in October from 28 the prior month, indicating prevailing optimism amid manufacturers, albeit at a declining pace. This is the survey's 4th consecutive month above zero. The survey's six-month outlook rose to 63.4 from 55.5. The employment components of the survey proved mixed as the number of employees fell to 21.6 from 33.3 while the average workweek rose by 5.1 to 16.2

Yen Allows Dollar to Gain

The dollar ended a little lower against the Japanese currency from yesterday's close but managed to claw back some gains in NY Trade above the 108.70 level. USDJOY traders did not give the greenback the same treatment seen against other currencies after MoF sources reiterated the possibility to selling foreign bonds in order to finance currency interventions. Wednesday's intervention was proved to be another stark example of the central bank's insistence to stabilize any excessive strength in its currency despite declarations from the international community (G7) to do otherwise. Repetitive central bank action at the 108-yen could provide traders with a recurring opportunity since the level increasingly appears to be a key dollar support. USDJPY support seen at 108.40, backed by 107.85-90 and 107.45. Preliminary resistance held at 109.35-40, followed by 109.75-80 and 110.35-40.

EURUSD Retreats on Misreported Radar Blip, Awaits Ecofin

The euro struggled on news of the explosion in Turkey, which resulted into the death of over 20 persons. The US dollar was steadfast on the news, which sent European markets stocks in a tailspin.

But the medium-term euro focus reverted to the spat over the stability pact, over which Berlin plans a proposal to the EU next week. The proposal will entail Germany's plans to control its domestic finances and stabilize its rising budget deficit, which has breached above the EU's maximum level of 3% of GDP for 3 years. But some market participants worry that the plan will be rejected by the EU in which case would be an embarrassing occurrence for the country that once championed the stability pact's budget rules.

Separately, the president of the European Association of Chambers of Commerce and Industry warned of the impact of the rising euro on regional growth, demanding the European Central Bank

to carry out a more growth-oriented policy approach. As With the pace of the euro's ascendance simultaneously with the ongoing silence from European officials, it's just a matter of time before traders test the psychologically material level of $1.20. Recall that ECB Chief Duisenberg did hint last month that the bank's tolerance level stood around $1.21 given no change in the economic conditions.

French Fin Min Mer, however, played down the impact of the current euro strength, saying the economy was in a recovery mode and that the government could always implement appropriate fiscal measures.

EURUSD faces resistance at $1.1920 followed by 1.1970 and 1.20. A breach above this level sees pressure at 1.2030 and 1.2070. Preliminary support seen at 1.1870-75, followed by 1.1820 and 1.1775. Subsequent support held at 1.1730 backed by 1.1720.

Cable Hits Fresh 5-year High, Shrugging Attack

It had been a while since the British pound had not risen on geopolitical troubles as it today, when it rallied following the explosion in Turkey and the false alert in the White House. Although 2 of the 4 blasts in Turkey targeted British Bank HSBC and the British Consulate, the currency rebounded quickly Sterling ended little changed against the dollar during the US session after a full-cent decline in European trade prompted by the Bank of Japan action to buy dollars.

Balanced comments from BoE Chief Mervyn King and MPC member Kate Barker failed to give traders any cogent clarity on the central bank's incoming policy moves. Mr. King said spoke of the need to remain vigilant against rising domestic demand and inflation while indicating the slowdown in the growth rate of personal debt. Ms Barker left matters open by saying the MPC's actions were done on a monthly basis and suggesting that a rate hike in November did not necessarily imply another tightening the following month.

Cable shot up to a fresh 5-year high at $17086 before retreating by nearly half a cent. Renewed buying seen facing resistance at 1.7075, 1.71 and 1.7145. Support held at 1.7010, 1.6945-50. Further losses seen supported at 1.6880 and 1.6820.

November 20, 7:00 AM: EUR/$..1.1917 $/JPY..108.94 GBP/$..1.7035 $/CHF..1.3 AUD/$..0.723 $/CAD..1.3048

Turkey Blast Rocks Markets, Gold Lurks Below $400 by Jes Black

At 8:30:00 AM US Weekly Jobless Claims (exp 365k, prev 366k) At 9:00:00 AM US Fed Chairman Greenspan speech At 10:00:00 AM US October Leading Indicators (exp 0.2%, prev -0.2%) At 12:00:00 PM US November Philadelphia Fed Survey (exp 25.0, prev 28.0)

Global stock markets were rocked following a series of bombings in Istanbul, Turkey that are being blamed on al-Qaeda and a Turkish militant group. The dollar, having traded as high as 1.3089 against the Swiss franc, fell to a session low of 1.2985 but did not sink to new lows against the majors, as recent steep losses appeared to be holding back the bears. US Treasuries added to recent gains on safe haven buying and gold benefited as well, rising to $396 against the dollar from overnight lows around $393.

Today's data is expected to show a mixed picture, with jobless claims potentially falling to a three-year low while the Philly Fed survey eases to 25 in November from 28. Fed Chairman Greenspan is also set to speak at 10AM.

Blasts Overshadow Bush Visit

The blasts damaged parts of the British consulate and anticipate what is likely to be a large protest of President Bush's visit to the UK, where some 100,000 anti-war activists will march through London. Mr. Bush will also have to address protests over his protectionist stance stemming from the WTO row over steel tariffs and export subsidies that are now overshadowed by quotas on textiles from China.

Trade Threatens Treasury Demand

While political in nature, China said today it would raise tariffs on some American imports. But despite the tariffs and quotas foreign central banks, particularly in Asia, have hardly shown any fluctuations in their demand for US assets. Total central bank holdings of US Treasuries and agency bonds have reached a record $1 trillion this month, with 80% going in Treasuries alone. Nevertheless, the return on Treasuries is again may break below 5% on the 30-year bond, highlighting the risk of holding US obligations amid an unashamed policy of currency flexibility .

UK Retail Sales Boost Sterling

Sterling shrugged off the Turkey bombing and instead rallied on better than expected retail which rose 0.6% in October and 3.7% year over year. The report brought back concerns that the Bank of England may have to raise rates sooner than it would like. But yesterday's dovish BoE minutes have quelled those concerns for now.

Stock Markets Ignore Good New, Focus on Bad

US equity futures plunged on the news of the Turkey blast, showing that the market is now longer ignoring bad news. Friday's reversal in stocks from a high of 1063 in the S&P and this week's follow-through lower stands in contrast to recent reports of strong US growth. That these have failed to propel the indexes higher, meaning that the current period of profit taking may continue. German GDP rose 0.2% in Q3, as expected, confirming a preliminary estimate from last week. But the Dax fell 1.5% in afternoon trade after recoiling from downtrend resistance at 3,700 this month. The Nikkei ended 2.61% higher at 9,865.70, recouping some of this week's gains as Japan's trade surplus rose in October for the fourth straight month. But the Nikkei is still below the key 10,000 level which may mean more selling on Friday if the US markets end lower again.

EUR/USD

The euro slipped briefly below the 1.19 level this morning on profit taking after reaching a peak of 1.1975 overnight. Another attempt to take out this high may be in order, especially if there is more weakness in stocks this morning on worries over the recent bombing attacks. But extreme bullishness in the euro may mean that too many longs are crowding out potential for further gains. But any setbacks from the 1.20 level should find support around 1.17/1.18 as traders now anticipate a move to the 1.24 level before year's end.

USD/CHF

The dollar fell back below the 1.30 level, but held above its overnight low of 1.2916. Today's correction carried it to the 61.8% retracement of yesterday's 1.3079 high. If this holds, a retracement higher to correct the decline from 1.38 is likely. Key support is seen at 1.2770 and until that is breached, a profit-taking rally may ensue, taking the dollar back to the 1.3250 level. But new lows are likely to be had as the Swiss franc follows the euro higher in the medium term.

GBP/USD

Sterling rallied across the board as it recovered from its own weakness against the single currency. Tuesday volatility saw sterling struggle with key resistance at the 1.6880/1.69 level then explode through. Now the pair is looking to overcome its previous 6-year high at 1.7075, which will now act as key resistance. Failure again today at this level will target support at 1.6950 and 1.69.

USD/JPY

The dollar struggled to hold above the 109 level after it spiked higher on probable Japanese intervention overnight from a new 3-year low of 107.58. The inability to hold above 110 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106. However, if this were to coincide with a EUR/USD top around 1.24/26 then the dollar may very well find a bottom at these new lows.

AUD/USD

The Australian dollar is hovering around recent 6-year highs of 0.7245. With gold attempting to break above $400, new highs in the commodity currencies cannot be ruled out. But given that the Aussie has rallied for 11 consecutive weeks, and the pair has now reached our targeted resistance of 0.72/0.74, the Aussie is vulnerable to a larger correction soon.

USD/CAD

The dollar is holding above 1.30 this morning but the move from last week's 10-year lows against the Canadian dollar at 1.2951 may not be the bottom. Nevertheless, the US dollar's decline against the CAD should be nearing an end. If new lows are reached they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast last week.

November 19, 10:37 PM: EUR/$..1.1908 $/JPY..108.91 GBP/$..1.6969 $/CHF..1.3042 AUD/$..0.7221 $/CAD..1.3051

European Forex Trading Preview by Korman Tam

At 2:00 AM Germany Q3 GDP prelim q/q (exp 0.2%, prev -0.2%) Germany Q3 GDP prelim y/y (exp -0.2%, prev -0.7%) At 2:45 AM France Q3 GDP q/q (exp 0.4%, prev -0.3%) At 4:30 AM UK October Retail Sales m/m (exp 0.3%, prev 0.6%) UK October Retail Sales y/y (exp 3.3%, prev 3.9%) UK October PSNCR (exp -1.0 bln sterling, prev 8.6 bln sterling) At 6:30 AM Italy November Cities CPI m/m (exp 0.2%, prev 0.1%) Italy November Cities CPI y/y (exp 2.5%, prev 2.6%)

The greenback slipped lower against the majors in early Thursday trading, relinquishing the 1.19-level against the euro and just shy of the 1.70-mark versus the sterling. Meanwhile, with currency markets continuing to focus on US protectionist policies, the dollar may remain under pressure as China threatens to retaliate against the proposed import quotas. China expressed its opposition to the proposed trade policy, saying it was firmly against the move, and said it would appeal to the WTO to 'safeguard the interests of Chinese industries .

EURUSD

The euro edged back above the 1.19-mark in Tokyo. Interim resistance is seen at 1.1930, followed by 1.1975 and 1.20. A breach above will target 1.2040, followed by 1.2070 and 1.21. Support begins at 1.19, followed by 1.1850 and 1.18. Further losses will target 1.1760, backed by 1.1725 and 1.17.

EURJPY will face resistance at 130, followed by 130.50 and 131. Subsequent ceilings will emerge at 131.30, backed by 131.85 and 132. Support begins at 129.65, followed by 129.30 and 129. Subsequent floors are eyed at 128.50, backed by 128 and 127.40.

USDJPY buoyed

The pair remained support as traders exhibited heightened wariness to BoJ intervention. Resistance is eyed at 109.30, followed by 109.65 and 110. A breach above will target 110.30, backed by 110.70 and 111. Support is seen at 108.60, backed by 108.30 and 108. Subsequent floors are seen at 107.85, followed by 107.25 and 107.

Cable

Cable consolidated sideways in early Thursday trading, failing to recapture the 1.70-level. Support is seen at 1.1670, followed by 1.6950 and 1.69. Further losses will find support at 1.6840, followed by 1.68 and 1.6760. On the upside, resistance is eyed at 1.70, followed by 1.7050 and 1.7070. Subsequent ceilings are eyed at 1.71, backed by 1.7130 and 1.7175.

AUDUSD

The Australian dollar maintained its buoyant tone against the greenback, hovering near 72.30. Resistance is eyed at 72.65, followed by 73 and 73.40. Additional gains will target 73.80 and 74. Losses will encounter support is seen at 72, followed by 71.60 and 71.20. A breach below will find subsequent floors at 71, followed by 70.65 and 70.20.

USDCHF

USDCHF drifted lower in Tokyo, sliding to 1.3029. Support is seen at 1.30, followed by 1.2870 and 1.2780. Subsequent floors are eyed at 1.27, backed by 1.2650 and 1.26. On the upside, gains will find resistance at 1.3085, followed by 1.32 and 1.3250. Subsequent ceilings are seen at 1.3295 and 1.3325.

USDCAD

The pair held steady above the 1.30-mark, trading at 1.3040. Resistance is seen at 1.31, followed by 1.3130 and 1.3170. Additional gains will target 1.32, backed by 1.3250 and 1.33. Losses will be tempered at 1.30, backed by 1.2950 and 1.29. Subsequent floors are seen at 1.2865, followed by 1.2820 and 1.28.

November 19, 5:00 PM: EUR/$..1.1875 $/JPY..109.29 GBP/$..1.6971 $/CHF..1.3084 AUD/$..0.7212 $/CAD..1.3043

BoJ Gives Dollar Time to Lick its Wounds by Ashraf Laidi

The dollar edged higher today after suspected yen selling intervention by the Bank of Japan helped it find the bottom for the session. The suspected action from Tokyo prompted broader dollar buying, allowing traders to unwind positions following Tuesday's plunge in the greenback. The tone in FX markets, however, remains predominantly dollar negative amid the decision by the US to impose quotas on Chinese clothing and the latest data showing a sharp drop in foreign purchases of US assets.

Meanwhile, the US Housing market continued to soar in its own vacuum after housing starts unexpectedly rose 2.9% in October to hit an 18-year high. In a further signs of future strength, building permits, an indicator of future construction, rose 5.2% to tjeir highest level in 9 years.

One day after US Treasury Secretary John Snow rejected possibilities that the US was heading into a period of protectionism, the US Commerce Department said the US might impose a 7% import quota on Chinese clothing. Currency markets worry that such protectionist measures would not only raise prices and hamper the US recovery but could also induce a global retrenchment that triggers downward pressure on the US dollar.

Yen Drops as BoJ Rises to Occasion

The yen ended lower across the board after the Bank of Japan was suspected to have spent about 1 trillion yen in selling its currency for US dollars in an effort to stem excessive strength. Japanese officials had no qualms in voicing their position on intervention, asserting their action to be mainly that of stabilizer rather than trend-reverser. Repetitive central bank action at the 108-yen could provide traders with a recurring opportunity since the level increasingly appears to be a key dollar support. USDJPY support has risen to 108.80, backed by 108.55 and 108.20. Further losses expected to stabilize at 107.85 and 107.45. Preliminary resistance held at 109.50 followed by 109.85-90 and 110.35-40.

EURUSD Eases Gains

The euro backtracked against the dollar from yesterday's all time highs, dropping nearly a full cent as euro buying soiled over from USDJPY.

With the pace of the euro's ascendance simultaneously with the ongoing silence from European officials, it's just a matter of time before traders test the psychologically material level of $1.20. Recall that ECB Chief Duisenberg did hint last month that the bank's tolerance level stood around $1.21 given no change in the economic conditions.

Drifting at the $1.1880s, euro faces resistance at 1.1920 followed by 1.1070 and 1.20. A breach above this level sees pressure at 1.2030 and 1.2070. Preliminary support seen at 1.1880, followed by 1.1820 and 1.1775. Subsequent support held at 1.1730 backed by 1.1720.

Cable Consolidates After Decline

Sterling ended little changed against the dollar during the US session after a full-cent decline in European trade prompted by the Bank of Japan action to buy dollars. The currency briefly fell after the release of the minutes of this month's Bank of England monetary policy decision, which produced a 25-pb rate hike. The minutes showed a 8-1 vote in favor of the rate hike, keeping traders in undecided as to the next policy step and its timing. Traders will mull Thursday's retail sales figures expected to have declined in October to 0.2% y/y from 0.6% .

Cable sees support at $1.6930 backed by 1.6905-10. A breach below 1.69 sees sellers pausing at 1.6860. Renewed sterling buying expected to face prelim pressure 1.7 followed by 1.7030 and 1.7075. A breach above that sees key resistance at 1.71 and 1.7145.

BoJ Stabilizes Aussie's Drop

Aussie's backtracking did not share the magnitude of the euro's retreat after the BoJ's yen selling intervention helped to stabilize the currency. This is characteristic occurrence in Asian/Pacific rim FX whereby Aussie and yen tend to pull apart from one another. Resistance remains at 72.50, followed by 72.85 and 73.20. Support holds at 72.20, 71.75-80 and 71.30.

November 19, 7:00 AM: EUR/$..1.1903 $/JPY..108.78 GBP/$..1.698 $/CHF..1.3023 AUD/$..0.7208 $/CAD..1.3017

Japan Intervenes as Gold Hits $400 amid Dollar Selloff by Jes Black

At 7:00:00 AM Canada October CPI m/m (exp n/f, prev 0.2%) Canada October CPI y/y (exp n/f, prev 2.2%) Canada October CPI-x m/m (exp n/f, prev n/a) Canada October CPI-x y/y (exp n/f, prev 1.7%) At 8:30:00 AM US October Building Permits (exp n/f prev 1.88 mln) US October Housing Starts (exp 1.85 mln prev 1.89 mln)

The dollar reached new lows against the euro, yen and gold as concerns over growing deficits, war in Iraq, protectionism and four consecutive days of decline on Wall Street rattled the markets. This week has been marked by extreme volatility, with gold prices yo-yoing from $400 to $385 and back to $400 again, while the euro dipped from 1.1860 to 1.1740 and then rallied to new all time highs. The yen also reached new 3-year highs of 107.60 this morning before Japan intervened in large order sending the dollar to a session high of 109.11.

Stock markets are looking increasingly nervous as the Nikkei plunged again on Wednesday, falling nearly 3% to 9614 from last week's highs above the key 10,000 mark. Wall Street has closed lower for four consecutive days with many traders discouraged by yesterday's laundry list of events that weighed on the greenback.

Bush Adds China Textiles Protectionist List

The dollar began Tuesday's sharp decent just before the newswires reported that the US approved one-year import restrictions on certain Chinese garments. The Bush administration appears willing to pull out all the stops to ensure job growth by election time next November and the dollar is taking the brunt of traders' fears.

China's Commerce Ministry said today that the government is firmly opposed to the US decision and that it reserved the right to protest to the WTO. Recall that China had already threatened action against the steel tariffs and today China's cotton lobby said China should retaliate for the new import quotas.

Conventional Wisdom Misses the Point

Conventional thinking in Washington is that China's currency peg to the dollar is the source of US ills. Recall that the trade gap with China reached a record $12.7 billion as the deficit widened in September to $41.3 billion. The total deficit with China this year alone may reach $130 billion, which would be the most with any country in U.S. history. Yet China's growing imports are set to bring its total surplus into balance, highlighting that this is a US-centric problem.

The truth is that US manufacturing has been in a decline since the 1970s when the US abandoned its policy of settling trade balances in gold and instead embarked on a dollar IOU policy of epic proportions. This made it possible to finance a growing trade imbalance, which other countries took advantage of and foreigners now hold over $1 trillion in dollar assets. Prior to closing the dollar for gold window in 1971 this vast amount of dollar reserves held overseas would have seemed unfathomable.

Therefore, under a system that actively encourages more consumption via cheap credit creation and deficit spending, achieving a textbook type of trade balance may not come without first cutting off the cheap credit tap. Meanwhile, a simultaneous policy of currency debasement and protectionism is eerily reminiscent of previous deflationary cycles and will only add to emerging tensions in global trade.

Foreign Investors Flee Dollar Assets

While often noted as the world's economic engine, the fuel has increasingly come from foreign savings, which the US consumes voraciously from willing lenders.

One half of last quarter's US government Treasuries were sold to the central banks of Japan and China. But aside from Asian central banks, investors have pared back their purchases of US stocks and bonds, making it harder for the US to fund its fiscal and current account deficits.

Traders therefore acted accordingly when a Treasury Department report showed foreigners investment in the US hit a 5 year low in September. Foreigners bought a mere net $4.19 billion down from $49.9 billion in August, the smallest since $1.17 billion in September 1998.

Dovish BoE Minutes Hurt Sterling

The much awaited MPC vote showed a split 8-1 decision to raise rates in November. This was seen as dovish especially since one member voted to keep rates steady. Markets had anticipated a unanimous decision and the short sterling market had previous priced in a near certain chance of another rate hike in December. This now looks less likely and sterling may have lost is interest rate expectations edge.

In this weeks reports we highlighted the possibility that for sterling the rate expectations game could be seen as a lose/lose situation as another rate hike would slow the nascent recovery, while taking away the possibility of a forthcoming rate rise would diminish the interest rate differential expectations, which has been priced into sterling.

EUR/USD

The euro slipped back to the 1.19 level this morning on profit taking after reaching a peak of 1.1975 overnight. On Monday we said a correction back below 1.18 in the near term may be necessary to clear out more longs before the euro climbs back above 1.19 but over the medium term we should see a the rally. This now appears to be the case and any corrections from here should be met with buying interest as traders now anticipate a move to the 1.24 level before year's end.

USD/CHF

The dollar fell over 3 centimes yesterday from a session high of 1.3263 to a low of 1.2916. Key support is seen at 1.2770 but new lows are likely to be had as the Swiss franc follows the euro higher.

GBP/USD

Sterling followed the euro higher against the dollar despite its own weakness against the single currency. Yesterday's volatility saw sterling struggle with key resistance at the 1.6880/1.69 level then explode through. Nevertheless, sterling failed to take out its previous top at 1.7075 two weeks ago, which will now act as key resistance. Support is seen at 1.6950 and 1.69.

USD/JPY

The yen spiked higher on probable Japanese intervention after the dollar reached a new 3-year low of 107.58 in London. The inability to hold above 110 may bring forth further weakness and it is looking increasingly likely that a move below 108 will target the more bearish outlook of 105-106. However, if this were to coincide with a EUR/USD top around 1.24/26 then the dollar may very well find a bottom at these new lows.

AUD/USD

The Australian dollar rose to a new 6-year high of 0.7245. With gold attempting to break above $400, new highs in the commodity currencies cannot be ruled out. But given that the Aussie has rallied for 11 consecutive weeks, and the pair has now reached our targeted resistance of 0.72/0.74, the Aussie is vulnerable to a larger correction soon.

USD/CAD

The dollar rallied to resistance at 1.3150/60 on Tuesday before falling back to the 1.30 mark this morning. The move from last week's 10-year lows against the Canadian dollar at 1.2951 may not be the bottom, but the US dollar's decline against the CAD should be nearing an end. Further weakness is still possible with gold attempting to break above $400. But if new lows are reached they may be shallow allowing the dollar to bottom in the 1.27/1.28 area that we forecast last week.

November 18, 10:30 PM: EUR/$..1.1951 $/JPY..108.2 GBP/$..1.7023 $/CHF..1.2942 AUD/$..0.723 $/CAD..1.3003

European Forex Trading Preview by Korman Tam

At 2:45 AM France October HICP final m/m (exp 0.2%, prev 0.5%) France October HICP final y/y (exp 2.3%, prev 2.3%) At 3:00 AM Italy September Industrial Sales m/m (exp n/f, prev -1.3%) Italy September Industrial Sales y/y (exp n/f, prev -5.4%) Italy September Industrial Orders m/m (exp n/f, prev -1.7%) Italy September Industrial Orders y/y (exp n/f, prev -11.6%) At 6:00 AM E-12 September Eurostat Trading (exp 8.25 bln euros, prev 6.5 bln euros)

The greenback remained mired near its previous session's lows against the majors in Tokyo, as currency markets maintained its bearish tone on the dollar. In early Wednesday trading, the dollar slumped to a fresh record low versus the euro at 1.1976 and new multi-year low against the Aussie at 72.45. Traders dumped the dollar overnight as a result of the Bush administration's renewed protectionist tone toward its trade partners, as China was threatened with export quotas to the US. Separately, amid renewed dollar bearishness, spot gold broke above $400/oz for the first time since March 1996.

Euro propped to new all-time high

The single currency maintained its buoyant tone, rising to a fresh new high against the dollar at 1.1976. Further gains will face resistance at 1.20, followed by 1.2040 and 1.2070. Additional resistance is eyed at 1.21, backed by 1.2150 and key resistance at 1.22. Meanwhile, losses will encounter support at 1.1930, followed by 1.19 and 1.1850. Subsequent floors will emerge at 1.18, followed by 1.1760 and 1.1725.

EURJPY edged up higher to 129.45. Interim resistance is eyed at 129.65, followed by 130 and 130.50. A breach above will target 131, followed by 131.30 and 131.85. Support is seen at 129, followed by 128.50 and 128. Further declines will find subsequent floors at 127.40, backed by 127 and 126.60.

Dollar/yen supported at 108

Japanese equities extended its losses, as the Nikkei slid 2.21% to 9,677 by afternoon trading. Meanwhile, dollar/yen remained supported above the 108-mark. Interim support starts at 107.85, followed by 107.25 and 107. Subsequent floors are seen at 106.65, followed by 106.30 and 106. Gains will face resistance at 108.30, followed by 108.60 and 109. A breach above will target 109.65, followed by 110 and 110.30.

Cable

The sterling remained buoyed above the 1.70-mark against the dollar. Resistance begins at 1.7050, followed by 1.7070 and 1.71. Additional resistance is seen at 1.7130, followed by 1.7175 and 1.72. On the downside, interim support starts at 1.70, followed by 1.6975 and 1.6950. Subsequent floors are seen at 1.69, backed by 1.6840 and 1.68.

Aussie inches higher

The Aussie edged up higher to a fresh multi-year high at 72.45. Resistance is seen at 72.65, followed by 73 and 73.40. Additional gains will target 73.80 and 74. On the downside, support is seen at 72, followed by 71.60 and 71.20. A breach below will find subsequent floors at 71, followed by 70.65 and 70.20.

USDCHF

The pair continued to trade near its lows, mired near 1.2940. Support is seen at 1.2870, followed by 1.2780 and 1.27. Additional losses will target 1.2650 and 1.26. Gains will target interim resistance at 1.30, followed by 1.3085 and 1.32. A breach above will target 1.3250, backed by 1.3295 and 1.3325.

November 18, 4:00 PM: EUR/$..1.1946 $/JPY..108.06 GBP/$..1.7019 $/CHF..1.2942 AUD/$..0.7234 $/CAD..1.2994

Protectionism & Foreign Flow Worries Widen USD Damage by Ashraf Laidi

Further damage engulfed the US dollar today amid a combination of worries over protectionist measures by the US towards China and fresh data showing declining foreign purchases of US assets. The dollar's losses were best highlighted by the euro's surge to new all time highs at $1.1950 and fresh 6-year highs in the Aussie.

Triple Strike Against Greenback

The dollar deepened its losses early in the US session once the data from the US Treasury showed net foreign purchases to have fallen to $49.9 billion in September from August's $53 billion, registering an unprecedented fourth monthly consecutive decline. The decline was spread evenly across all asset categories, namely, US government bonds, agencies, corporate bonds and stocks. The data refuel lingering doubts over the US' ability to finance its growing trade deficit.

One day after US Treasury Secretary John Snow rejected possibilities that the US was heading into a period of protectionism, the US Commerce Department said the US might impose a 7% import quota on Chinese clothing. Currency markets worry that such protectionist measures would not only raise prices and hamper the US recovery but could also induce a global retrenchment that triggers downward pressure on the US dollar.

US consumer inflation was unchanged in October after having risen for four straight months including a 0.3% rise in September and August. The core CPI--excluding volatile food and energy costs-- rose 0.2% due to rising costs of public transportation, tuition and medical care. The muted evidence of inflation in the headline figure stemmed from lower prices for autos and gas.

EURUSD Soars to All Time Highs

The euro jumped by more than 2 cents to hit a new all time high, or 5-year high as measured in the euro's synthetic formation prior to its inception in 1999. The currency stood as a major beneficiary of the latest capital flows data released this morning showing continued backtracking from foreign investors. The euro's rise was also highlighted by traders' rushing into the currency following yesterday's slide against the greenback.

EURUSD resistance has broken the major 1.1930 trend line resistance extending from the 1.2150 high (Oct 98) thru the 1.1932 high (Mar 03). Key resistance seen at 1.120 followed by Support 1.2030 and 1.2070. Support starts at 1.1880, 1.1820 and 1.1775. Subsequent support held at 1.1730 backed by 1.1720.

Yen Drags USD Back Under 108

The Japanese currency quickly pared Monday's losses on worries of US protectionism enacted against China. The dollar fell by a full yen to 107.95, eliciting possibilities of potential BoJ intervention in the Tokyo Wednesday session. Nonetheless, the central bank is unlikely to step in right after a general dollar slide, since such action would be seen as targeting a general dollar problem that is out of its control. The BoJ would more likely intervene when the dollar decline is mainly concentrated against the yen. USDJPY supports seen holding at 107.85, 107.45 and 107.20. Upside capped at seen at 108.50 and 108.80.

Commodity FX Soar Along with Gold

One day after the commodities-dependent currencies of Australia and Canada joined a sell-off in Gold amid increased perceptions of overbought conditions in these assets, today both currencies capitalized on the greenback's slide. Spot Gold retraced 89% of Monday's $13 decline, reaching $398.25 per pounce. Barring Monday's losses in the AUD and CAD, traders continue to maintain a predominantly bullish outlook in these two currencies on the basis of a global recovery expectations and a higher interest rate outlook favoring both economies.

AUD Breaks to New 6-year Highs

Just as the Aussie seem to be finally entering its first weekly decline in 11 weeks, the Aussie mounted 1.5 cents to 72.44 cents amid the renewed attack on the greenback. Resistance levels are now cropping up to 72.50, 72.85 and 73.20. Support holds at 72.20, 71.75-80 and 71.30.

CAD

CAD's best captured the USD decline and gold's rebound to drag the US currency by more than 2 cents to 1.2970. Key support seen at the latest 10-year low of 1.2950, followed by 1.2880 and 1.2850. Resistance 1.3030-35, followed by 1.3060 and 1.3080.

Cable at 2 Week Highs

Sterling shrugged the latest inflation data from the UK showing a lower than expected 2.7% y/y rise in the retail prices index ex-mortgages. The week's sterling focus shall fall largely on Wednesday's release of the minutes from this month's Bank of England monetary policy decision, which produced a 25-pb rate hike. The minutes should be help traders grasp the latest shift in thinking amid the 9 members of the Monetary Policy Committee to better assess the prospects for further rate hikes.

Cable surged by 2 cents to hit 1.7052, before backtracking more than half cent. Resistance starts at 1.7030, followed by 1.70 and 1.7075. A breach above that sees key resistance at 1.71 and 1.7145. Support seen at 1.6975 backed by 1.6930. A breach below 1.69 sees sellers pausing at 1.6860.

November 18, 7:00 AM: EUR/$..1.1739 $/JPY..109.03 GBP/$..1.6879 $/CHF..1.3253 AUD/$..0.7151 $/CAD..1.3106