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At 8:30:00 AM US Jan Retail Sales (exp 0%, prev -0.1%) US Jan Retail Sales Ex autos (exp 0.2%, prev -0.1%)
The dollar held steady against the European majors today as market participants await today's US retails sales report for January. But the dollar gave up more ground against the yen as the Japanese continue to repatriate funds ahead of March. Today's warning by Moody's rating agency that it was prepared to downgrade Japan's domestic yen rating as early as next month helped solidify fears amongst the Japanese. Meanwhile, fading weak yen rhetoric and a stabilizing Nikkei helped shore up the sell off of Japanese assets, thereby lending support to the yen.
Initially, 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. However, the yen was able to rise to a day's high of 132.23 after tripping stop loss orders around USD/JPY support at 132.50. EUR/JPY fell to a low of 115.73, down from a day's high of 116.80 and well off Tuesday's high of 117.52. USD/JPY support now seen at 132.20 followed by 131.90 and 131.20.
USD/JPY is likely to trade in a range between 130 to 135 into the month of March. Despite the fact that the market is convinced of further yen weakness to come this year, JPY remains supported in the short term. JPY losses should also be contained to 135 against the dollar now that Japanese officials eased off their weak yen policy last week.
Moreover, USD/JPY came off Monday's high of 135 after this weekend's announcement that the government might inject as much as $US 78 billion into the financial sector. This has halted the sell off in Japanese assets by foreign investors we saw last month. The Nikkei rose over 4% from last weeks lows.
Recent data from the MoF shows that in January, foreigners' net Japan bond selling rose to Y1.2368 trln from a mere Y172.22 bln in December. Therefore, this side of the repatriation equation has settled down and JPY should remain supported by recent capital flows data for February which showed Japanese investors sold an unusually large 575.6 billion yen ($4.30 billion) in foreign securities last week, the sixth straight week of net sales. This should keep Japanese repatriation fears until the end of March when the fiscal year ends.
Meanwhile, the dollar traded steady against the European majors today as dealers await today's US retails sales report for January. Declining vehicle sales and low gas prices will weigh on total January retail sales growth, which is expected at flat to slightly negative. However, excluding auto sales, core retail sales should show its first a slight rise as consumer confidence remains strong. Markets are therefore anxious to know how the consumer reacted in January after a strong spending binge in December. A better than expected figure would be bullish for the dollar as it would show one cannot underestimate the US consumer even in a recession.
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 87.10/00 and a break of that level would be the first strong confirmation of resumption in the euro's bear trend.
Yet, even if the euro holds above 87.40, it 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 60.99 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 rose to a new 3-week high of 1.4362 following surprisingly upbeat UK jobs data which raised the expectations of the Bank of England raising rates later this year. Official data showed UK unemployment unexpectedly fell back by seasonally-adjusted 10,600 in January, instead of rising. Tuesday's jump in inflation data also highlighted buoyant domestic economy and fanned expectations of higher interest rates, which tend to benefit sterling.
However, the pound gave up some of those gains after the BoE's inflation report cited little risk to rising interest rates as long as the risks to growth remain to the downside. The bank said in its inflation report that it sees RPIX to trend near the targeted 2.5% by year end and for GDP to rise to around trend of 2.5% as well by end 2002. However, the key risks are the imbalances in the UK economy. GBP/USD resistance is seen at 1.4340, which marks the 61.8% retracement of the move from 1.4515-1.4040 move. Follow up resistance at 1.4410 and 1.4520. Support seen at previous resistance levels of 1.4235 and 1.4180.
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 will also be a busy day on Wall Street after the retail sales data with numerous companies reporting Q401 earnings results. Key companies include Hewlett-Packard, Intuit, and Marriott International.