The dollar pushed higher across the board after Fed Chairman Greenspan maintained his upbeat assessment for US growth. Greenspan said: “The cumulative removal of policy accommodation to date has significantly raised measures of the real federal funds rate, but by most measures, it remains fairly low", implying rates shall remain on the rise, thus further increasing the yield luster of the US dollar. Greenspan admitted the central bank’s bemused with falling long yields in the face of higher short term rates, calling it a “conundrum".

Greenspan countered the possibility that a flattening curve might be a signal slower growth ahead with the argument that “rising equities prices and thinning credit spreads might suggest otherwise”. Greenspan added it wasn’t credible US current account deficit to go on without change “because you will get an undue concentration of dollar claims on US residents, which even though they are considered highly valuable with high rates of return and the like, they lack the diversification of a good portfolio and foreign investors will therefore start to ease off”. The comment, which was made in the Q&A; session did not draw as much as scrutiny as it might have had if it were in the written testimony.

Oil prices soared to a 3-week high at $48.66 per barrel on news of an explosion in Iran near its nuclear reactor. Renewed jitters in the Middle East after Monday’s assassination of former Lebanese PM Hariri has prompted speculation of a possible US attack in Syria or (and) Iran.

On the data front, US Industrial production was flat last month, defying expectations of a 0.3% rise, after it was revised down to 0.7% from 0.8%. Capacity utilization rate slipped to 79.0% from 79.1% from 79.2%, surprising expectations of a rise.

Euro bounces post Greenspan

The euro managed to regain most of the full cent drop sustained after Greenspan’s testimony, especially after the Chairman indicated his preoccupation with the swelling US current account deficit.

Traders turn to tomorrow’s industrial output figures from German expected to show a 0.5% rise in December after a 0.7% drop, but most importantly the leading indicators index and Philly Fed Index in the US. The former is seen flat after a 0.2% drop and the latter up to 18 from 13.2

Rising to as high as $1.3050, EURUSD faces resistance at 1.3091—38% retracement of the drop from the 1.366-4 high thru the 1.2732 low. Accumulate gains seen at $1.3130 resistance. Support starts at 1.29, followed by 1.2870-90s $1.2816. Resilient support stands at 1.2730, followed by $1.2713-- the 50% retracement of the rose from the 1.1759 low to the 1.3664 high.

Yen leaps on GDP contraction, Greenspan

The yen was dealt a double, starting with renewed signs of an econcom,I contraction followed by Greenspan’s hawkish comments. Japan’s economic growth slipped into a technical recession in Q4 with a 0.5% drop, marking its third consecutive quarterly contraction.

USDJPY pushed towards the 105.50s, facing 105.75--38% retracement of the 112.51-101.66 drop, followed by 106. Support starts at 104.70, backed by 104.20—the 50% retracement of the 101.66-106.84 move, and subsequent support at 103.61—the 61.8% retracement of the said move.

Sterling stabilizes losses

Sterling's initial losses emerged after the Bank of England published a relatively dovish inflation report, which although assessed inflation higher than in the previous report, it expected dampened house price inflation. The report also deemed the risks to growth and inflation projections “somewhat to the downside”. Yet traders are not ruling out another rate hike from the current levels of 4.75%.

Cable’s support seen stabilizing at $1.8825—the 38% retracement of the 1.8951-1.8753 drop, followed by $1.8740 and $1.8690. Upside capped at $1.8908 resistance—the 38% retracement of the $1.9549-1.8524 decline, now facing resistance at $1.8980, followed by $1.9030—the 50% retracement of the said move.

At 8:30 AM January Housing Starts (exp 1.93 mln, prev 2.0 mln) At 9:15 AM US January Capacity Utilization (exp 79.3%, prev 79.2%) US January Industrial Production (exp 0.3%, prev 0.8%) US January Industrial Production (exp 0.3%, prev 0.8%) At 10:00 Fed Chairman Greenspan Congressional Testimony

The dollar fell against the euro, but gained versus the sterling and yen in early Wednesday trading. In the coming session, traders will have much to digest with the release of January housing starts, capacity utilization, industrial production and Fed Chairman Greenspan’s congressional testimony.

Forexnews expects Greenspan to reiterate the Fed’s positive outlook on the economy, which includes maintaining the “measured tightening” mantra. More dollar support is seen in the event that Greenspan reiterates his confidence with the Administration’s “intentions” to reduce the budget deficit (regardless of unanswered questions on how to do it). While Greenspan should remain relatively silent in his prepared speech about the trade deficit and the dollar, we expect him to enlighten us during the Q&A; session, where he is likely to be pressed on the sustainability of US dependence on foreign investment. His position on the subject has long been a sanguine outlook on the US markets’ ability to absorb an adjustment by foreign investors, yet he did hint to an eventual reconsideration of US assets by foreign investors

Cable Slumps on BoE Report

UK’s January claimant count declined by more than expected, falling by 11k, exceeding the 4.5k decline forecasted. The headline unemployment rate also unexpectedly dropped, falling to 2.6% versus 2.7% in December. The Average earnings figure was slightly softer than forecast, increasing by 4.3% in the 3mths to December, compared with expectations for a 4.4% rise.

The Bank of England released its quarterly inflation report earlier, revealing the Bank expects CPI to reach its 2% target in 2006, and rising slightly above in 2-yrs. The BoE said the CPI profile is a little higher than in the previous inflation report, while adding that house price inflation had eased broadly as predicted. The report said that GDP growth would be around 3% in 2-yrs, slightly stronger in near-term than in November’s report. The risks to growth and CPI projections were somewhat to the downside, though there was a range of views among the MPC. Meanwhile, BoE Governor King said the largest difference from the November report is that house prices were broadly flat in the past three months. Markets interpreted the report as slightly dovish, and as a result sold off on the sterling.

Cable dipped beneath the 1.89-level following the inflation report. Support begins at 1.8850 and 1.88. Subsequent floors are seen at 1.8770, followed by 1.8730 and 1.87. A move back above 1.89 will target resistance at 1.8950, followed by 1.8980 and 1.90. Additional ceilings are seen at 1.9040, followed by 1.9075 and 1.91.

Yen Slumps on GDP

Data released earlier revealed that Japan’s economy slipped back into a technical recession in Q4. Japan’s Q4 annualized GDP fell 0.5%, contrary to forecasts for a 0.5% rise, marking its third consecutive quarterly contraction. Private sector consumption fell 0.3% q/q, worst than the expected 0.1% drop, while external demand of GDP contribution declined 0.2%. Furthermore, in order for Japan to meet its 2.1% government target for 2004-2005, the economy must grow by 2.1% in Q1.

Despite Japan’s weak data, government officials remained steadfast in their assessment of the economy. Japan’s Prime Minister Koizumi said the economy was gradually improving, albeit in a state of protracted consolidation. Cabinet Secretary Hosoda said that while Japan’s economy hit a flat stage, there was no change in the view that the trend was for a moderate recovery. Economics Minister Takenaka echoed a similar message, reiterating that the economic recovery remains intact despite weak spots. He added that Japan was still in mild deflation, but improvement is seen. Takenaka also expects improvement in the corporate sector gradually spreading to the household sector.

USDJPY climbed higher following the weaker than expected GDP figures, rising to 105.20. Resistance is seen at 105.40, followed by 105.80 and 106. Subsequent ceilings will emerge at 106.30, backed by 106.70 and 107. Meanwhile, support begins at 105, backed by 104.60 and 104.20. Additional floors are eyed at 104, followed by 103.80 and 103.50.

Euro Edges Higher in Range

The euro continued to trade within a narrow range overnight above the 1.30-level. Resistance is seen at 1.3040, followed by 1.3075 and 1.31. Additional gains will target resistance at 1.3130, followed by 1.3180 and 1.32. Support starts at 1.30, followed by 1.2960 and 1.2920. Subsequent floors are expected to emerge at 1.29, backed by 1.2870 and 1.2830.

The dollar extended its losses across the board on a combination of a renewed decline in US-bound foreign capital flows and emerging nervousness in Lebanon following yesterday’s assassination of former Lebanese PM Hariri. A bigger than expected drop in US retail sales of 0.3% last month was offset by a strong 0.6% increase in the core sales figure. The Empire State survey on manufacturing slipped to 19.2 from 20.08.
Foreign capital lows into the US dropped 31% to $61.3 billion in December after an upward revision in November to $89.3 billion from a previously stated $81.3 billion. Although the figure stood comfortably above the $56 billion trade deficit in December, the 31% slowdown took place in US treasuries, Agencies, stocks with the exception of corporate bonds. Net foreign purchases of US Treasuries fell 75% to a 15-month low of $8.3 billion in December, which accounted for 87% of the total decline in net capital flows.

Turning to tomorrow’s Congressional Testimony by Fed Chairman Greenspan’, we expect him to reiterate the Fed’s positive outlook for the economy, which includes maintaining the “measured tightening” mantra. More dollar support is seen in the event that Greenspan reiterates his confidence with the Administration’s “intentions” to reduce the budget deficit (regardless of unanswered questions on how to do it). While Greenspan should remain relatively silent in his prepared speech about the trade deficit and the dollar, we expect him to enlighten us during the Q&A; session, where he is likely to be pressed on the sustainability of US dependence on foreign investment. It would be rather insightful if any of the Senators referred to the November TICS data, and surging dependence of US Treasury sales on foreign central banks. Greenspan’s position on the subject has long been a sanguine outlook on the US markets’ ability to absorb an adjustment by foreign investors, yet he did hint to an eventual reconsideration of US assets by foreign investors.

For more details on the December TICS report, see Articles & Ideas


Euro shakes off hesitancy

The euro pushed up a full cent to as high as 1.3050, after several bouts of hesitant steps following strong German data and weak US TICS report. Germany’s ZEW expectations indicator surged to 35.9, beating both forecasts for a rise to 30.0 and January’s 26.9 reading, while US-bound foreign capital tumbled 31% in December amid a broad-based decline and soaring US resident’s outflows into foreign stocks as well as bonds to 5-year highs.

Holding around the 1.3020s, EURUSD sees resistance at 1.3091—38% retracement of the drop from the 1.366-4 high thru the 1.2732 low. Subsequent resistance stands at $1.3130 resistance. Support starts at 1.29, followed by 1.2870-90s $1.2816. Resilient support stands at 1.2730, followed by $1.2713-- the 50% retracement of the rose from the 1.1759 low to the 1.3664 high.

Yen accelerates gains

The dollar’s decline began in early noon Tokyo trade and gathered pace throughout the European session. The TCIS report showed that Japanese purchases of US treasuries fell 0.4% to $711.8 billion in December, following a modest increase in November and two monthly declines in the prior months. These three monthly declines in Japanese holdings of US treasuries are the first since October 2002. This is in line with our assessment that held that Japanese authorities cannot afford stacking their $700+ billion chest of US treasuries when the dollar is expected to shed more of its value after an 18% decline in trade-weighted terms over the past 3 years. A gradual Japanese retreat from US dollar securities into non-dollar assets is inevitable in order to avoid massive losses on the central bank’s US dollar portfolios.

USDJPY attempts upside at previous support of 104.60 followed by 105.30 and 105.75-- 38% retracement of the 112.51-101.66 drop. But downside is likely to be tested at 104.20—the 50% retracement of the 101.66-106.84 move, with subsequent support at 103.61—the 61.8% retracement of the said move.

Sterling hits 6-week high

Sterling added another cent today capitalize on the dollar’s decline and another steady reading of CPI at 1.6% as well as an improvement in the RICS housing data. Sterling traders are bracing for potential hawkishness from Wednesday’s BoE quarterly inflation report, which will give the inflation assessment at the end of the 2-year period.

Cable breaks above the $1.8908 resistance—the 38% retracement of the $1.9549-1.8524 decline, now facing resistance at $1.8980, followed by $1.9030—the 50% retracement of the said move. Support rises to $1.89, backed by $1.8860 and $1.8820. Key support stands at 1.8760, followed by $1.8620 and $1.85.

At 8:30 AM US January Retail Sales (exp –0.4%, prev 1.2%) US January Retail Sales ex-autos (exp 0.4%, prev 0.3%) US February Empire State Manufacturing Survey (exp 20.00, prev 20.08) At 9:00 AM US December TICS Net Capital Flows (exp $65.0 bln, prev $81.0 bln) At 10:00 AM US December Business Inventories (exp 0.2%, prev 0.1%) At 10:30 AM Canada BoC Deputy Governor Kennedy Speaks

The dollar continues to trade on weak footing against the majors, slipping toward the 1.30-level versus the euro and 1.89 against the sterling. Despite currencies remaining confined within a narrow range overnight the dollar remains sluggish as markets await several key US economic reports.

US Data to be released today include January retail sales, February Empire State manufacturing survey, December TICS net capital flows and the December business inventories. The TICS net capital flows data is expected to drop to $65.0 bln, compared with $81.0 bln from the previous month. Retail sales is also seen dropping 0.4% in January, reversing December’s 1.2% increase. However, the ex-autos figure is seen edging up to 0.4%, from 0.3%.

Euro Mired in Range

The euro failed to significantly extend gains versus the dollar in Tuesday trading, remaining mired within a narrow range. Germany’s stronger than expected ZEW survey failed to garner additional buying interest in the single currency. The February ZEW expectations indicator surged to 35.9, beating both forecasts for a rise to 30.0 and January’s 26.9 reading. The current conditions indicator also improved to –58.7, up from –61.2 a month earlier. ZEW Chief Franz said that analysts’ expectations point to a more stable domestic economic situation. Franz also said that risks to economic growth have increased slightly, but added that the panel would stick with its 2005 German full-year growth forecast of 1.4%.

Separately, the European Commission downwardly revised its Q1 GDP forecasts down to 0.2% m/m, and –0.6% y/y, compared with the preliminary forecasts of 0.3% monthly and –0.7% annually. The EC expects Q2 quarterly GDP growth of 0.2% monthly and –0.6% annually.

EURUSD will face resistance at 1.30, followed by 1.3040 and 1.3075. Additional gains will target 1.31, followed by 1.3130 and 1.3180. Support starts at 1.2960, backed by 1.2920 and 1.29. Subsequent floors will emerge at 1.2870, backed by 1.2830 and 1.28.

Cable

UK’s January CPI data fell 0.5% m/m compared with a 0.5% increase in December and unchanged annually at 1.6% -- remaining beneath the BoE’s 2.0% target. The RPI was also down 0.5% m/m and up 3.2% y/y, while RPI-x fell 0.6%, while rising 2.1% y/y – short of calls for a 2.4% increase. The ONS said the largest downward effects on CPI stemmed from transport, clothing/footwear and furniture. Also released earlier in the session was the UK RICS house price survey, which improved to –36 in January, from –38 a month earlier.

Cable traded narrowly overnight, trading between 1.8850 and 1.8895. Resistance starts at 1.89, followed by 1.8950 and 1.8980. Additional ceilings will emerge at 1.90, followed by 1.9040 and 1.9075. Support starts at 1.8850, backed by 1.88 and 1.8770. Subsequent floors are seen at 1.8730, backed by 1.87 and 1.8680.

USDJPY

Japan’s corporate bankruptcies fell 13.8% y/y at 1039, while corporate bankruptcy debt rose 32.0% to 0.5985 trillion yen. Corporate bankruptcies slipped 2.3% m/m, and debt fell 33.3%, marking its 25th consecutive monthly decline.

Dollar/yen fell from its session high at 105.40 to dip back beneath the 105-level. Support starts at 104.60, followed by 104.20 and 104. Additional floors will emerge at 103.80, followed by 103.50 and 103. Meanwhile, gains will target resistance at 105, backed by 105.40 and 105.80. Subsequent ceilings will emerge at 106, followed by 106.30 and 106.70.

The dollar fell across the board as last week’s late sell-off prolonged into further losses amid strong current account surplus from Japan and strong manufacturing prices from the UK. Worries that tomorrow’s release of the December Treasury International Capital Systems (TICS) data showing whether foreigners remain active buyers of US assets. The dollar could steady later in the week when Fed Chairman Greenspan makes his testimony will offer dollar supporting remarks such as praising the Administration’s rhetorical attempts towards trimming the budget deficit and sounding off the Fed’s tightening policy. Oil prices edged higher above the $47.40s after a bomb blast in Beirut killing former Lebanese Prime Minister Rafik Hariri. A little-known group calling itself Victory and Jihad in the Levant (Greater Syria) claimed responsibility. Emerging speculation suggest Syria is behind the assassination due to Hariri’s resounding opposition to the Syrian-backed regime in Lebanon. The assassination further raises the specter of a possible US involvement in Syria, thus, rendering US foreign policy even more engaging and potentially more constraining for the dollar.

Markets turn attention to Tuesday’s Capital flow data from the US and the ZEW Survey from Germany, but most of all focus on Fed Chairman Greenspan Congressional testimony on Tuesday and Wednesday. UK CPI, US and Eurozone Industrial production, and US retail sales and Philly Fed Index will also be scrutinized as well as the US PPI.

Yen come back relentlessly

The yen surged by over a full yen in Asian trade after Japan’s December current account surplus jumped 35.1% to 1.6160 trillion yen, compared to estimates for a 4.5% increase. The trade surplus increased 28% in December to around 1.78 trillion yen.

After a 100-point drop, USDJPY regained the 105 level. A breach below 104.90, faces support at 104.20—the 50% retracement of the 101.66-106.84 move. Upside capped at 105.30, followed by 105.78s, 38% retracement of the 112.51-101.66 drop, followed by 106.20 and 106.67 resistance—38% retracement of the drop from the 114.61 high thru the 101.66 low.

Euro rallies on ECB hawkishness

Euro extended its rally above the $1.29 figure to the $1.2980s amid remarks by the European Central Bank expressing concerns with emerging inflation. ECB VP Papademos said that risks to price stability have increased stronger recently indicating money supply and credit growth were showing inflation risk of further acceleration given further economic recovery.

EURUSD resistance seen capped at 1.3020, followed by 1.3091—38% retracement of the drop from the 1.366-4 high thru the 1.2732 low. Subsequent resistance stands at $1.3130 resistance. Support starts at 1.29, followed by 1.2870-90s $1.2816. Key foundation stands at 1.2730 and key foundation at $1.2713, which is the 50% retracement of the 1.1759-1.3664 move.

Sterling test $1.89 resistance

Sterling leapt 2 cents to above the $1.89 after Britain’s report on raw material posted their shapre3s rise in 4 years last month, increasing expectations of a rate hike by the Bank of England.

Cable faces interim resistance at $1.8908—the 38% retracement of the $1.9549-1.8524 decline. Subsequent resistance stands at $1.8980, followed by $1.9030—the 50% retracement of the said move. Support starts at 1.8760, followed by $1.8620 and $1.85.

No Key Data

The dollar extended its losses in early Monday trading against the majors, still reeling from last week’s US trade deficit figure. The week ahead will see several key economic events likely to drive currency moves, including Fed Chairman Greenspan’s congressional testimony, US capital flow data, US retail sale, the Philadelphia Fed index and US PPI.

Yen Jumps on Data

The yen received a shot in the arm at the start of trading today following earlier releases of upbeat economic data. Japan’s December current account surplus sharply exceeded economists’ forecasts, surging 35.1% compared to estimates for a 4.5% increase. The unadjusted current account surplus spiked up to 1.6160 trillion yen. Furthermore, the 2004 current account surplus hit a record high at 18.59 trillion yen. Also released today was December industrial production, which was upwardly revised to –0.8% m/m, versus a preliminary –1.9% m/m. Japan’s January consumer confidence improved to 47.4, up from December’s 44.0.

USDJPY broke beneath the 105-level to 104.66. Support starts at 104.60, followed by 104.20 and 104. Additional floors will emerge at 103.80, followed by 103.50 and 103. Meanwhile, gains will target resistance at 105, backed by 105.40 and 105.80. Subsequent ceilings will emerge at 106, followed by 106.30 and 106.70.


Euro Edges Near 1.30

The euro climbed just shy of the 1.30-level overnight to hit a session high at 1.2989. Speaking earlier in the session, the ECB’s Papademos said that risks to price stability have increased stronger recently. He said liquidity, M3 money supply, and credit growth were showing inflation risk of further acceleration given further economic recovery. Papademos added that the ECB remains vigilant, would is ready to act if the probability of rising inflation increases.

EURUSD will face resistance at 1.30, followed by 1.3040 and 1.3075. Additional gains will target 1.31, followed by 1.3130 and 1.3180. Support starts at 1.2960, backed by 1.2920 and 1.29. Subsequent floors will emerge at 1.2870, backed by 1.2830 and 1.28.

Cable Extends Gains

The sterling continued to assert strength on the dollar, rising to 1.8870 overnight. Resistance starts at 1.89, followed by 1.8950 and 1.8980. Additional ceilings will emerge at 1.90, followed by 1.9040 and 1.9075. Support starts at 1.8850, backed by 1.88 and 1.8770. Subsequent floors are seen at 1.8730, backed by 1.87 and 1.8680.