The dollar tumbled in Tuesday trading amid dismal economic data and heightened war talks concerning Iraq. The Conference Board's consumer confidence index for August had its worse showing since November 2001, coming in far below expectations at 93.5 from 97.4 in July. Also weighing down on dollar sentiment was Vice President Dick Cheney's hawkish speech on Iraq, which inevitably shifted the focus of market attention to the Iraqi situation, thereby pushing the currency lower. Cheney stated that the US cannot deal with the Iraq situation through a policy of containment. He also insinuated the Bush presidency would be a failure if he did not manage to bring about a change of regime in Iraq. In response to Cheney's hawkish rhetoric, government officials of Qatar stated they unequivocally opposed any US strike against the Iraqi regime of Saddam Hussein. Qatar, a small gulf emirate, is home to three bases used by US forces, including the US Al-Udaid base which is currently used to support operations in Afghanistan. The near term direction of the dollar remains uncertain since an attack on Iraq will have a detrimental impact on the currency.
USDJPY fell by almost 200-pips, triggering stops along the way to hit a 1-week low of 117.95. The pair has recouped some of those losses and is now steady at 118.10. Helping to boost the yen were comments from Japan EcoMin Heizo Takenaka hinting at larger than expected tax cuts. Takenaka stated that the proposed 1 trillion yen tax cut may not be enough and added the government may consider revising growth forecast after seeing Q2 GDP, which will be released on Friday. Japan's seven leading think tanks are estimating that the preliminary number for Q2 GDP grew by a mere 0.2% from the previous quarter according to the Cabinet Office's new formula. The seven think tanks believe that economic growth was mainly attributable to exports, which they estimated to have grown 4-7% from Q1.
Japanese stocks were unable to extend their winning streak for a sixth consecutive day, falling to profit taking following the Nikkei's first breach above the 10,000-level since July 30th. The Tokyo average slid 1.59% to close at 9,907.30. US stocks were lower on Tuesday, with the Dow Jones and Nasdaq falling 1.06% and 3.16%, respectively. Fears that US consumers may retrench following the consumer confidence data and bearish remarks from Intel weighed down on US equities. It will interesting to see if the Nikkei can shrug off news and continues to rally after taking a breather.
USDJPY finds support at 117.83, the 68% retracement of the move from 116.30 (August 14) to 120.30 (August 22). Subsequent support is seen at 117.50-60, followed by 117.30. Resistance starts at 118.30, the 50% of the same move, followed by 118.50-60 and 118.85.
EURUSD is steady at 98.28, after hitting a session high at 98.38 just shy of 98.40, the 38% retracement of the decline from 1.0201 (July 18) to 0.9621 (August 6). Resistance is seen at 98.40, followed by 98.70 and 99.10, the 50% retracement of the same move. Support is seen at 97.80, followed by 97.55, and 97.25.
US economic data for the remainder of the week include preliminary Q2 GDP, July Personal Income, July Personal Spending, final August University of Michigan Sentiment Survey, and August Chicago PMI. Also noteworthy, Fed Chairman Alan Greenspan will speak at the Kansas City Fed Jackson Hole Symposium on Friday, where it is expected he will reiterate his current policy stance. From the Eurozone for later today is German economic institute IFO's business confidence index, which is expected to post a decline for the third straight month.// www.iqi.ru