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February 13, 2:00 AM: EUR/$..0.8749 $/JPY..133.10 GBP/$..1.4325 $/CHF..1.6872
At 4:30:00 AM UK Dec Avg earn 3 month y/y (exp 4%, prev 4.2%) UK Jan Claimant Count (exp 6k, prev 3.2k) UK Jan Unemployment Rate (exp 3.2%, prev 3.2%) UK Dec Unit wage 3 month (exp n/f, prev 3.7%)
The yen came under renewed pressure following today's warning by Moody's rating agency that it was prepared to downgrade Japan's domestic yen rating as early as next month. USD/JPY rose to a day's high of 133.37 following the news that the downgrade would be at least two notches from the current Aa3. EUR/JPY also rose to a day's high of 116.80 but remains weakened by yesterday's fall from a high around 117.50. USD/JPY support is seen at 132.50, 132.20 and 132.0. Resistance is eyed at 134.0, 134.60 and 135.0. Standard & Poor's rating agency might also change its ratings on Japanese government bonds unless Japan pushes through reform measures or starts exhibiting signs of a rebound.
The Nikkei added another 90 points to its recovery today after falling last week below 9500 which put it down 32% since January 1, 2001. Stocks have fared better since Japanese officials eased off their weak yen policy last week and began discussing ways to inject capital into the failing banking sector. There has been widespread speculation that the government plans an imminent injection of funds into Japan's banks to help them recapitalize. However, Yamasaki, the secretary-general of Japan's ruling Liberal Democratic Party, said today that there is no need to forcibly inject public funds into Japanese financial institutions unless there are systemic risks in the economy.
Meanwhile, in the coming days, FX traders will be listening for any comments that may emerge from President Bush's trip to Japan on February 17. Traders will also beware of repatriation ahead of year end book closings in March, which could drive JPY higher.
EUR/USD held near a day's low of 87.41 which marks key support for the pair. On Tuesday, offers at 88.00/10 kept a cap on EUR/USD again after Monday's wave of stop-loss buying failed to develop into more sustainable demand for the euro. A break below 87.40 would target 87.00 and a break of that level would be the first strong confirmation of resumption in the euro's bear trend.
On the other hand, the single currency still needs to clear 88 cents followed by key resistance at 88.75/80 to remove its bearish outlook. That level marks the 61.8% retracement of this year's high to low of 90.63 to 85.63. Looking forward, unless the single currency can rise above the 88.80-cent level, its momentum should wane and turn back south again.
The euro also added to losses against the pound as it fell to a new low of 61.10 pence. The euro began to weaken against the pound after a test of 61.95 last Friday was rejected. Tuesday's break below 61.55 support triggered stop loss sales on its way to a low of 61.32. Therefore, renewed pressure on the pair could carry it back towards this month's lows around 60.68 pence. This would cause the euro to give up any further gains on the back of a rise in GBP/USD.
Sterling was little changed is Asian trade after easing back from a 3-week high of 1.4345. Upside was held around the 1.4340 area, which marks the 61.8% retracement of the move from 1.4515-1.4040 move. Without a break of that level, the pair remains heavy, dealers say. Support seen at previous resistance levels of 1.4235 and 1.4180.
Sterling was unfazed by yesterday's unexpected jump in UK inflation to a high of 2.6% in January from 1.9% the month before. This was a surprising rise above the Bank of England's target rate of 2.5% so the market will be interested in hearing Wednesday's Bank of England inflation forecast that should provide clues on interest rate hikes later this year. Stronger than expected inflation would lead to further expectations for the UK to be the first major country to raise interest rates this year as the BoE tries to stem debt fueled consumer spending. Markets will also want to know if the bank revises its growth outlook for the UK.
Other data today includes the UK labor report which is expected to show a rise in the claimant count in January but the unemployment rate hold steady at 3.2%.
USD/CHF rose to a day's high of 1.6907 but is still struggling to maintain above resistance at 1.6880 after a strong rebound from yesterday's low of 1.6779. For the near term USD/CHF needs to maintain above 1.6820 to avoid further fall to the 1.6685 area. This level marks the 61.8% retracement of the 1.6350-1.7229 rally, which should hold dealers say. Resistance is seen at 1.6880.
Today's release of US retail sales is expected to show a decline to -0.3% in January from the previous -0.1% due to falling auto sales. However, retail sales ex-autos are forecasted to rise to 0.4% in January from -0.1% in December helped by strong general merchandise and apparel sales.
This week's other major US economic releases include retail sales, jobless claims, business inventories, import prices, PPI, industrial production and the University of Michigan confidence survey. Key Eurozone indicators consist of the ECB monthly bulletin, Dutch GDP, French employment, French trade balance, French industrial production and Italian industrial production. Noteworthy UK data releases are the labor market report and the Bank of England inflation forecast. Highlights from Japan comprise GDP, balance of payments, industrial production and Tokyo department store sales.