Jim Cote // Chicago, July 31 (BridgeNews) - The yen rebounded from recent lows as the Nikkei gained 282 points in response to Japanese government hints that another extra budget may be forthcoming during this fiscal year. The euro continues to do battle with the greenback at 87.50 cents to the dollar. August declines appear to be the norm for the euro. In 2000, the drop turned into such a debacle that intervention occurred in September.

Euro/dollar rose slightly on stops near 0.8750,, dollar/Swiss franc slid in tandem with the euro advance, sterling/dollar dropped but remained in its 1.42 to 1.43 range, while dollar/Canada continued its rise.

Current Previous Change Global Global
NY open NY close low high

USD/JPY 124.78 125.13 -0.35 124.70 125.25
EUR/USD 0.8753 0.8742 0.0011 0.8734 0.8765
EUR/JPY 109.25 109.41 -0.16 109.12 109.56
GBP/USD 1.4247 1.4254 -0.0007 1.4250 1.4300
USD/CHF 1.7245 1.7268 -0.0023 1.7228 1.7287
USD/CAD 1.5288 1.5298 -0.0010 1.5268 1.5300
AUD/USD 0.5074 0.5056 0.0018 0.5022 0.5078

The July round of economic data kick off this morning with consumer the Conference Board July consumer confidence report and the July Chicago Purchasing Management index. The domestic economic agenda also includes June personal income and spending.

USD/JPY dropped to an intra-day low of 124.70 as the Nikkei gained 282 points in response to Japanese government hints that another extra budget may be forthcoming during this fiscal year.
The Japanese Minister of state for Fiscal and Economic Policy Heizo Takenaka said an extra budget would be possible, if necessary, to implement structural reform. In a Yomiuri Shimbum interview, Finance Minister Masajuro Shiokawa also hinted that an extra budget may be necessary.
Prime Minister Junichiro Koizumi said he would draw up a concrete timetable for the process of structural reform in August.
Another batch of poor Japanese economic data had little impact. The unemployment rate rose to 4.92% in June from 4.89% in May while real spending by wage earners fell 3.3% y/y in June. Japanese housing starts fell 10.5% y/y in June.
Additionally, Fuji Bank said it expects to receive 119.7 billion yen from the sale of its U.S.-based Heller Financial subsidiary.
The outlook is bearish over the near-term.

Support: 124.70 (overnight low), 123.26 (20-day moving average), 124.00 (Gann 50-point pivot; targets: 123.50/124.50), 115.17 (60-day moving average), 122.70 (July 20 trough), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 121.05 (Gann 50-point pivot; targets: 120.55/121.55).
Resistance: 125.25 (overnight high), 125.50 (Gann 50-point pivot; targets: 125.00/126.00), 126.15 (July 6 high; 3-month high), 126.84 (April 2 high; 29-month high), 127.00 (Gann 50-point pivot; targets: 126.50/127.50).

EUR/USD drifted within narrow ranges to an intraday high of 0.8765 in early trade as buying from European names took out stops around 0.8750. Historically, the month of August has been bad for the continental currency. In 2000, the August decline turned into such a debacle that intervention occurred in September.
French PPI fell 0.1% m/m to give a 2.3% y/y increase in June while France's unemployment rate rose to 8.8% in the same month from 8.7% in May. French housing starts rose 3.1% y/y in the April-June period. Italian PPI fell 0.2% m/m in June to give a 2.3% y/y gain, from a 0.4% m/m fall and 2.9% y/y increase in May. Spanish PPI was unchanged m/m in June to give a 2.4% y/y increase, down from 0.2% m/m and 2.7% y/y increases in May.
The outlook is bearish as euro bulls begin their August siesta.

Support: 0.8734 (overnight low), 0.8725 (20-day moving average), 0.8350 (July 6 low; 7-month low).
Resistance: 0.8765 (overnight high), 0.8790 (38.2% Fibonacci retracement level of the June-October downtrend), 0.8825 (July 26 peak; two-month peak), 0.8848 (61.8% Fibonacci retracement level of the Nov. 27-Jan. 5 uptrend).

EUR/JPY selling was reported, which slipped to an intraday low around 109.12. The JPY's gains were blamed. Bids are reported around the low with option related and U.S. offers said to lie at and just below the 110 level.
The outlook is bearsih on yen strength and overbought conditions.

Support: 109.12 (overnight low), 103.84 (100-day moving average), 107.57 (20-day moving average), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend), 104.54 (June 20 low), 105.12 (200-day moving average).
Resistance: 109.56 (overnight high), 109.80 (July 30 high; 3-month high), 111.02 (50% Fibonacci retracement level of May 1999-October 2000 downtrend).

GBP/USD selling was the only outstanding feature in another dull European morning session on Monday. Softening producer prices in various euro zone states had little impact.
Cable dropped to an intraday low around 1.4245 after selling from a UK clearing bank took out stops around the 1.4260 area.
The U.K. GfK consumer confidence index slipped to a reading of +6 in July from +4 in June. GfK said that while U.K. consumers expect their financial position to continue to improve, their economic confidence index fell to -11 in July from -5 in June.
The outlook is bearish.

Support: 1.4250 (overnight low), 1.5094 X (100-day moving average), 1.3911 (June 20 low), 1.3688 (June 12 low; 15 1/2-year low), 1.3660 (February 1986 trough).
Resistance: 1.4300 (overnight high), 1.4349 (July 20 peak), 1.4414 (May 21 peak).