The dollar fell across the board despite an upward revision in Q4 GDP, ending lower against the major currencies for the second consecutive week. US Q4 GDP growth in 2004 was revised to 3.8% from an initial 3.1% reading to produce an annual rate of 4.4%. Upward revisions in exports and business investment helped boost Q4 growth. With oil prices already surging back to 4-month highs, traders reasoned that US imports would be reenergized by higher fuel prices, whole both personal and business spending could retreat due to higher energy prices.

For more detailed analysis on the GDP and the dollar , please see the latest articles &ideas;

Oil prices pushed to fresh shot up to a fresh 4-month highs at $52.17 pb following yesterday’s remarks by Saudi oil minister Al Naimi expressing his approval with high oil, calling it a reality of current supply and demand forces.
USDJPY treads towards 105

The yen edged higher despite renewed signs of deflation, slowing trade surplus and a rise in US Q4 GDP. The Bank of Japan reiterated it was maintaining its currency quantitative easing policy but that was nothing new to currency traders who aren’t expecting a change until late this year—in the earliest.

Drifting around the 105.30s, USDJPY support stands at 105, followed by 104.27—50% retracement of the 101.66-106.84 move. Key foundation stands at 103.70-- trend line from 101.66 low thru the 102.35 low. Resistance starts at 105.70, followed by 106 and 106.30.

Euro ignores US GDP

In a blatant rebuff to the US GDP revision, the euro gained half a cent nearly reaching the $1.3250s. The euro’s strength was relatively broad-based, rallying even against the yen, overcoming Wednesday’s disappointing IFO figure.

Euro faces upside resistance at Upside starts at 1.3250, followed by 1.3270, and 1.3310—61.8% retracement of the 1.3664-1.2730 drop. Support starts at $1.32 level, backed by $1.3170 and $1.3120. Key support stands at 1.3089—38% retracement of the said move.

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At 8:30 AM Canada Q4 Current Account Balance (exp C$8.0 bln, prev C$9.4 bln) US Q2 Personal Consumption Expenditure – prelim (exp 4.6%, prev 4.6%) US Q4 GDP prelim (exp 3.5%, prev 3.1%) At 10:00 AM US January Existing Home Sales (exp 6.75 mln, prev 6.69 mln)

The dollar climbed higher across the board as traders anticipate a strong showing in US Q4 GDP, due out shortly at 8:30 AM. Economists have forecasted a robust 3.5%-4.0% range in Q4 GDP, up sharply from the previous quarter’s reading of 3.1%. However, the greenback may relinquish its overnight gains versus the majors if the figure disappoints. Also slated for release today will be US Q2 personal consumption expenditure, seen unchanged at 4.6% and January existing home sales. Meanwhile, Canada will see Q4 current account balance, with the surplus forecasted to decline to C$8.0 bln, compared with C$9.4

Cable Backs Away from 1.91

UK Q4 GDP was unrevised at 0.7% q/q, falling short of forecasts for a 0.8% increase. The year-on-year figure was upwardly to 2.9%. The household spending component increased by 0.4% q/q and 2.7% y/y, while government spending rose by 0.8% q/q and 3.5% y/y. Production output slipped 0.1% q/q and 0.5% y/y, while manufacturing output increased by 0.2% q/q, and 0.5% y/y.

Cable will face resistance at 1.9130, followed by 1.9160 and 1.92. Subsequent resistance is seen at 1.9240, followed by 1.9265 and 1.93. Support starts at 1.9060, followed by 1.9020 and 1.90. Subsequent floors will emerge at 1.8950, followed by 1.89 and 1.8870.

Euro Drifts Lower

EURUSD was unable to sustain gains above the 1.32-level, eventually succumbing to selling toward 1.3150. Support starts at 1.3130, backed by 1.31 and 1.3070. Additional floors are seen at 1.3040, backed by 1.30 and 1.2965. Gains will target resistance at 1.32, backed by 1.3240 and 1.3270. Subsequent ceilings are seen at 1.33, followed by 1.3335 and 1.3375.

Dollar/yen Buoyed Above 105

Resistance is seen at 105.60 and 106. Additional resistance is seen at 106.30, backed by 106.70 and 107. Support starts at 104.60, followed by 104.20 and 104. Subsequent floors are eyed at 103.80, followed by 103.50 and 103

The dollar fared well bid against the major currencies on a combination of improved core durable goods orders and anticipation of an upward revision in Q4 GDP. The absence of data further stabilized the dollar following Tuesday’s route. US durable-goods orders fell 0.9% last month after having risen 1.4% in December from previously stated 1.1% increase, but the decline was largely caused by a 27.1% drop in aircraft orders. When excluding defense orders, durable goods rose 2.9%.

Weekly jobless claims rose 9K to 312K, while the 4-week average fell 3.35K to 308.8. The drop in the 4-week average helped improved sentiment in the markets and offered the dollar a better footing into tomorrow’s preliminary GDP report.

Oil prices shot up to a fresh 4-month high above the $52b, when Saudi oil minister Al Naimi attributed oil prices to supply and demand rather than speculative activity. Naimi also said he expects prices to hover close to $50 throughout the year. Noet that speculators were net short oilk contacts when oil last hit $50 in October. With oil prices soaring despite the fact that futures speculators are net shorts means that soaring prices are largely a result of eroding supplies and increased demand.

The preliminary Q4 GDP is expected to revised to as high as 3.7% from the advance 3.1%, partly due to December decline in the US trade deficit to $56 billion from the record high $59.3 billion.

On the South Korea FX front, central bank chief Seung reiterated the central bank had plans to sell US dollars held in its reserves for other currencies, but cited the British and Canadian currencies as potential targets for future investment. Seung said reserves diversification has been part of the the bank's policy direction for the past several years.

USDJPY adds to rebound

Yen fell further after additional remarks from South Korea indicating it will not sell dollars and statements from the Bank of Japan maintaining the currency quantitative easing policy.
USDJPY could regain the 105.50s later in the Asian session ahead of the US GDP report. A breach above 105.80 is followed by 106 and 106.30. Support starts at 105, followed by 104.27—50% retracement of the 101.66-106.84 move. Key foundation stands at 103.70-- trend line from 101.66 low thru the 102.35 low.

Euro back to $1.32

The euro lost most of its 70-pip gain in the US session reaching the $1.32 level. Following yesterday’s disappointing IFO reading at 3-month lows, traders turn to business confidence figures from France on Friday. But more importantly is the US Q4 GDP revision at 8.30 am NYT.

Euro’s hovers around the $1.32 level, facing support at $1.3170 and $1.3120. Key support stands at 1.3089—38% retracement of the 1.3664-1.2730 drop. Upside starts at 1.3230, followed by 1.3270, and 1.3310—61.8% retracement of the said move.

Aussie slips below 79 but oil is supportive

Aussie lost further ground of its 12 month high of Tuesday, but traders aren’t ready to give up all of the last week’s gains as the promise of higher oil and higher rates helps the Aussie. Also note that South Korea has hinted it would include the Aussie as one of the high-yielding currencies for investment. Support starts at 78.30, followed by 77.80. Resistance starts at 78.70 and 79.30.

At 8:30 AM US Weekly Jobless Claims (exp 306k, prev 302k) US January Durable Goods Orders (exp 0.0%, prev 0.6%) At 12:00 PM US St Louis Fed’s Poole Speaks At 5:30 PM US Fed Board Governor Bernanke Speaks

Currency trading was mixed overnight, with the dollar slipping against the euro and sterling, while edging up versus the Swissie and Loonie. The coming session will see US economic data consisting of weekly jobless claims, durable goods orders and the oil inventory report. Also on the agenda are Fed speeches from St Louis Fed President Bill Poole and Fed Board Governor Ben Bernanke.

Euro Edges Higher

EURUSD recovered further beyond the 1.32-level overnight, but gains were capped amid directionless trading. Resistance is seen at 1.3270, followed by 1.33 and 1.3335. Additional ceilings will emerge at 1.3375, backed by 1.34 and 1.3440. Support starts at 1.32, followed by 1.3180 and 1.3130. Subsequent floors are seen at 1.31, backed by 1.3030 and 1.30.

Dollar/yen Consolidates

Bank of Japan policy board member Fukuma reiterated the Bank’s need to maintain current quantitative easing policy until CPI increases. He interpreted the undersubscriptions in the BoJ’s money market operations as a sign of stabilizing in the nation’s financial system. Fukuma said it was important to keep the 30-35 trillion yen c/a deposits target until the financial system fully stabilizes, and that the target shouldn’t be lowered prior to the end of the deposit guarantee. Lastly, he said it was highly uncertain whether core CPI would show a steady rise in fiscal year 2005-2006.

USDJPY backed away from the 105-level, but trading remained within a narrow range. Resistance starts at 105, followed by 105.60 and 106. Additional resistance is seen at 106.30, backed by 106.70 and 107. Support starts at 104.60, followed by 104.20 and 104. Subsequent floors are eyed at 103.80, followed by 103.50 and 103.

Cable
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Cable will face resistance at 1.9130, followed by 1.9160 and 1.92. Subsequent resistance is seen at 1.9240, followed by 1.9265 and 1.93. Support starts at 1.8980, followed by 1.8950 and 1.89. Additional floors will emerge at 1.8870, backed by 1.8840 and 1.88.

Aussie Regains Composure

Australia’s capex data for Q4 sharply exceeded consensus forecasts for a 2.6% improvement, instead surging by 5.7%. Capital expenditure in Q4 amounted to A$14.95 bln. The fifth estimate for 2004-2005 capex was upwardly revised by 1.7% from the previous estimate to A$54.9 bln. Meanwhile, the preliminary estimate for 2005-2006 capex is seen up 8.1% to A$45.07 bln. The upbeat economic data provided support for the Aussie overnight.

The Australian dollar recovered slightly following yesterday’s drop versus the greenback. The overnight boost however, petered out just shy of the 0.79-level. Support begins at 0.7840, followed by 0.78 and 0.7780. Additional floors will emerge at 0.7730, backed by 0.77 and 0.7665. Gains past the 0.79-mark will target the pair’s 12-month high at 0.7960, backed by 0.80 and 0.8030. Subsequent ceilings will emerge at 0.8065, followed by 0.81 and 0.8140.

Swissie Buoyed above 1.16

Swiss Q4 non-farm payrolls were flat, holding steady at 3.629 mln, while the working population also remained steady at 4.178 mln. The index of vacancies increased by 22.1% to 97-pts. However, the Swiss unemployment rate increased to 4.1%, up slightly from January at 4.0%.

USDCHF held steady above the 1.16-level. Resistance starts at yesterday’s high of 1.1665, followed by 1.17 and 1.1745. Additional gains will target 1.1780, backed by 1.1835 and 1.19. Support starts at 1.1575, followed by 1.1530 and 1.1480. Additional floors will emerge at 1.1410, backed by 1.1380 and 1.1320.

Th edolalr edged higher on Wednesday after South Korea’s central bank denied it was reducing its dollar exposure following Tuesday’s remarks from stating its plan to diversify its currency reserves. The central bank said it had no plans to adjust with the proportion of its $200 billion in currency reserves, asserting that:” The plan meant that the central bank would diversify reserves more into non-government bonds and did not mean that it would sell current dollar holdings for other currencies." The central bank’s report to parliament on Monday said the bank would diversify its reserves away from US treasury bonds into higher yielding debt and into non-dollar currencies. The retraction helped the dollar bounce from Tuesday’s multi-week/month lows. Interestingly, Japan also denied it had any plans to expanding its euro holdings.

The minutes from the FOMC February meeting showed the US central bank kept the door open for further rate hikes as it saw the Fed funds rate still below the level needed for stable inflation, while several officials saw upward inflation risk particularly in the event of further dollar declines. Some officials also noted “considerable uncertainty” on productivity and output gap.

US CPI rose 0.1% last month after holding steady in December, while the core index, excluding food and energy items, once again rose 0.2%. The report relieved any fears of a large increase following Friday’s release of the 0.8% jump in core wholesale prices.
Oil prices remained at their 4-month highs above the $51pb, while Treasuries were little changed with the 10-year yield at 4.26%. US stocks staged a partial comeback after yesterday’s dollar/oil inflicted damage.

Euro drifts to $1.32

The euro stabilized on a combination of renewed disappointment in Germany’s IFO business survey and the retraction from South Korea’s central bank. Germany’s February IFO index unexpectedly dropped to a 3-month low at 95.5 this month from January’s 96.4, while the business expectations index fell to 96.4 from 96.8. There will be business confidence figures from France on Friday.

Euro’s backed off to the $1.32 level—50% retracement of the 1.3664-1.2730 drop, which is followed by $1.3170 and 1.3120. Key support stands at 1.3089—38% retracement of the said move. Upside starts at 1.3270, followed by 1.3310—61.8% retracement of the said move

Yen gives back ½ of Tuesday’s gains after remark

USDJPY rose back to the 105 level after the head of Japanese finance ministry’s FX markets division Masatsugu Asakawa said: “we have no plan to change the composition of our currency holdings…and we are not thinking about expanding our euro holdings” Nonetheless, it’s worth mentioning that Japan’s Finance minister Tanigaki said last earlier this month Japan had to exercise much care in managing its currency reserves, totaling $845 billion ads of end of last year.

The yen pulled ½ a yen to 105 after the comments from Tokyo. Resistance capped at 105.30, followed by 105.50 and 106. Support starts at 104.27—50% retracement of the 101.66-106.84 move. Key foundation stands at 103.70-- trend line from 101.66 low thru the 102.35 low.

Sterling edges towards $1.9030

Cable stabilized around the $1.9080s as the US dollar benefited from Seoul and Tokyo’s FX retraction. The Bank of England surprised the markets when it released the minutes of this month’s meeting showing the Committee voted 8-1 to leave rates unchanged at 4.75%, with the surprise vote for a 25-bp rate hike by Paul Tucker. The Committee stated the balance of risks to inflation forecast remained sufficiently on the downside. Traders still allow room for a rate hike this quarter.

Cable faces at $1.9152—the 61.8% retracement of the move from the $1.9549 high thru the $1.8507 low. Key pressure stands at $1.92. Support starts at $1.9030, backed by $1.8970. Support stands at 1.9030, followed by 1.8950.

At 8:30 AM US January Core CPI (exp 0.2%, prev 0.2%) US January CPI (exp 0.2%, prev 0.2%) At 1:40 PM US Atlanta Fed’s Guynn Speaks At 2:00 PM Minutes of February FOMC Meeting At 4:00 PM Canada FinMin Goodale Speaks

The dollar regained its composure as sellers of the currency took a breather overnight, recovering to 1.32 against the euro and 104.85 versus the yen. With Japan and South Korea both quelling speculation over the possibility of forex reserve diversification by their central banks, the heavily sold greenback found some reprieve in early Wednesday trading. Yesterday’s sharp sell-off was triggered by reports of South Korea potentially diversifying currencies in its massive $200 bln foreign exchange reserve portfolio. The fx volatility that ensued prompted Asian central banks to ease fears of an exodus from their US dollar holdings, as the Bank of Japan and Bank of Korea both expressed no desires to diversify its reserves by buying euros.

Traders will continue to keep a close watch on rising oil prices, with crude oil climbing to its highest level in 4-mths above $51 per barrel. Also in focus will be economic data slated for release in the coming session, including US January CPI and the February FOMC minutes. The January consumer price index is forecasted to remain unchanged from the previous month steady at 0.2%.

Sterling Up Slightly on BoE Minutes

The release of the Bank of England’s February minutes surprised markets with one unexpected vote in favor of a 25-bp rate hike. The MPC voted 8-1 in its February 9-10 meeting to hold interest rates unchanged at 4.75%, since most members viewed the balance of risks to inflation forecast remaining sufficiently on the downside. However, MPC member Paul Tucker voted in for a 25-bp hike, saying that although risks to inflation were skewed to the downside, they were still less than November therefore justifying a rate increase. Most members deemed that for the most part, risks to the central forecasts for GDP growth and CPI remained on the downside.

Following the release of the minutes, sterling received only mild support, edging up above the 1.91-level. Cable will face resistance at 1.9130, followed by 1.9160 and 1.92. Subsequent resistance is seen at 1.9240, followed by 1.9265 and 1.93. Support starts at 1.8980, followed by 1.8950 and 1.89. Additional floors will emerge at 1.8870, backed by 1.8840 and 1.88.

Euro Retreats toward 1.32

Germany’s February IFO index unexpectedly fell to 95.5, compared with forecasts for a rise to 96.8, and down from 96.4 in January. The business expectations index fell to 96.4, versus a revised 96.8 a month earlier, while the current conditions index dropped to 94.5 from 95.3. The IFO said manufacturing

The euro failed to further extend gains above the session high of 1.3274, instead retreating back toward the 1.32-handle. Meanwhile, resistance is seen at 1.3240, followed by 1.33 and 1.3335. Additional ceilings will emerge at 1.3375, backed by 1.34 and 1.3440. Support starts at 1.32, followed by 1.3180 and 1.3130. Subsequent floors are seen at 1.31, backed by 1.3030 and 1.30.

Dollar/yen Recovers

Dollar/yen climbed back up to 104.86 overnight, with resistance starting at 105, followed by 105.60 and 106. Additional resistance is seen at 106.30, backed by 106.70 and 107. Support starts at 104.60, followed by 104.20 and 104. Subsequent floors are eyed at 103.80, followed by 103.50 and 103.