Currencies reversed course in London trade with the dollar rebounding from earlier lows against the European majors and yen. Much of the dollar's fortune appears tied to a large turnaround in US equity futures that went from -55 to +75 in the Dow in a matter of hours, pulling European bourses out of a sharply negative start. A relief rally on Wall Street should certainly lift spirits, but key support levels for the greenback also held, showing that buying interest remains despite all the uncertainties in the marketplace. Germany's September IFO Business Confidence index fell as expected to 88.2 from 88.8. This is the fourth consecutive decline and down from its March high of 91.6 but showed signs of stabilizing above its October 2001 low of 84.7. German business conditions improved to 77.5 from 77.3, but expectations dragged the headline number down as it fell to 99.3 from 100.7. IFO's Sinn says the survey shows a slight improvement of current conditions but expectations remain poor.
Initial relief that the index met expectations lifted the euro as it shot through key resistance at 98.45 to a session high of 98.60. But large offers in the 98.45/60 range capped EUR/USD strength and sent it reeling through trendline support at 98.20 to a session low of 97.94. A break of 97.90 would test key support at 97.40/50 which needs to hold to avoid a selloff targeting 96.10 lows. Resistance remains strong in the 98.35-99.00 area where key trendline and Fibonacci resistance points have held up. It will take a move above this area to improve the euro's near term outlook. A report from the European Union today said a balanced budget goal can't be pursued regardless of economic conditions, but France, Germany, Italy, Portugal need more efforts to rein in budgets. On FX it said that the EUR rise has hit export competitiveness, but only partly corrects the past fall. On the economy, risks have increased and rising oil prices may jeopardize a global recovery. Says consumption could recover but the short term outlook is subdued. Monetary conditions are accommodating and inflation pressures are abating. Overall, the EU sees economic pickup in 2003, but 2002 growth is likely to remain below 1%.//www.forexnews.com