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January 24, 7:00 PM: EUR/$..0.8775 $/JPY..134.87 GBP/$..1.4248 $/CHF..1.6737

Japanese Forex Trading Preview by Darko Pavlovic

At 6 PM Japan overall CPI down 1.7% y/y down 0.3% m/m

The yen fell to a new three year low of 134.90 vs. the dollar after Japan Dec. Nationwide Core CPI fell 0.9% from a year earlier, 27th consecutive month of decline. Nationwide core CPI fell 0.8% in 2001 compared with the previous year, falling for the 2nd straight year. Overnight the markets were discouraged by Japanese Finance Minister's comments overnight that his policy was not to intervene in forex markets, but to let them decide exchange rates. Traders interpreted his remark as a signal to unload the yen. Finance Minister Shiokawa said yesterday he does not think the yen's decline has been too rapid. Recall, that the yen has lost 2% in just five preceding days. Shiokawa also added that the government plans to take action'' if the yen moves considerably. PM Koizumi plans to prepare a comprehensive package of tax reforms designed to combat deflationary pressure by spurring demand for real estate and housing. The Council on Economic and Fiscal Policy will focus on raising the gift tax exemption on monetary gifts from parents to children to finance housing purchases and plans to reduce or eliminate various real estate transaction taxes. A joint task force of government officials and the BoJ has agreed to ensure an ample supply of funds on the market and create demand through structural reform, in order to bring deflation under control. The government forecast that the economy which started shrinking 14 months ago, will probably contract 1% in the fiscal year ending March 31, and will likely have 0% this year. Resistance is eyed at 135.0 and 135.50. Support holds at 134.0, 133.60 and 133.0.

Federal Reserve head Greenspan said that the forces restraining the US economy are diminishing and activity is beginning to firm. Greenspan clarified that in his speech on January 11, he had tried to communicate that the economy was stabilizing while avoiding any talk about an economic snap-back, and thus he regretted not phrasing his speech differently. Although Greenspan felt that the US is "just at this particular point turning" in the US business cycle, he projected that the US is close to zero GDP growth. On its part, the White House also indicated it saw increasing signs of strength in the economy but also clouds. Therefore, the White House estimated "quite modest" GDP growth in Q1, followed by acceleration in growth later.

The euro is trading around 87.74 after falling to from its 1-month low of 87.53, underpinned by European Central Bank Vice-President Noyer's declaration in favor of a strong euro and that the ECB believes the European economy will recover this year. Noyer explained further that the single currency has sufficient room to rise without hurting industry. As for inflation, Noyer reiterated that Eurozone CPI should drop "clearly below 2%" after Jan-Feb and stay there. Resistance is viewed at 88.15, 88.60 and 89.10-- the 50% Fibonacci retracement of the move from 82.25 to 95.96. Support is seen at 87.50-- the 31.8% Fibonacci retracement of the move from 82.25 to 95.96, backed by 87.0 and 86.80.

This week's remaining key US indicator is existing home sales. From the Eurozone, major data due for release consist of German PPI, Italian CPI, Italian retail sales and Spanish PPI. The release of consumer prices in Japan is expected to reflect the prolonged deflationary spiral that is adding to their economic woes.

January 24, 4:00 PM: EUR/$..0.8770 $/JPY..134.75 GBP/$..1.4233 $/CHF..1.6769

Dollar Buoyant on Greenspan's Clarification, Better Jobless by Stacey Yang

The dollar stayed strong against the major currencies after Greenspan issued a cautious but optimistic outlook for the US economy that sent stocks powering to their session highs. US investors were also encouraged by the larger-than-expected drop in US jobless claims to 376k from the previous revised 391k that appeared to signal a sustained improvement in the job market. The US 4-week Jobless Average fell to 404,250 in the week of January 19 from the previous revised 413,000, and continued claims also declined to 3,458,000 in the week of January 12 from the previous revised 3,512,000.

Markets took heart today as Federal Reserve head Greenspan said that the forces restraining the US economy are diminishing and activity is beginning to firm. Greenspan clarified that in his speech on January 11, he had tried to communicate that the economy was stabilizing while avoiding any talk about an economic snap-back, and thus he regretted not phrasing his speech differently. Although Greenspan felt that the US is "just at this particular point turning" in the US business cycle, he projected that the US is close to zero GDP growth. On its part, the White House also indicated it saw increasing signs of strength in the economy but also clouds. Therefore, the White House estimated "quite modest" GDP growth in Q1, followed by acceleration in growth later.

On the positive side, Greenspan anticipated that spending would receive a boost from the liquidation of inventories. However, he believed that any lift from the inventory cycle may be short-lived without sustained final demand. Greenspan foresaw household spending would improve but tempered his comment by noting the outlook for household spending remains mixed as a continued rise in the jobless rate may dampen consumer spending. Furthermore, Greenspan warned that corporate profit margins are still under pressure.

As for the budget deficit, Greenspan commented that despite the erosion in the past year, the budget picture is still stronger than a decade ago. He advised budgets should include a limit on spending and tax plans if targets are not met, and reiterated that we must be acutely aware of the problems facing the budget after 2010 when the vast majority of baby boomers is expected to retire and thus strain the Social Security system.

Greenspan praised last year's tax cut that he believed mitigated the recession, but he was unsure whether a fiscal stimulus package is needed at present. In any event, Greenspan stressed that fiscal policies must focus on ways to augment productivity growth because the long-term budget outlook depends heavily on productivity. He stated that data showed productivity has held up "quite well" lately, and that fact in the midst of the economic downturn reflects the underlying strength of the economy, though he still saw more room to tap hi-tech to achieve more gains in productivity. On the issue of dollar policy, Greenspan declined to comment but instead deferred to Treasury Secretary O'Neill.

Markets' perception that Greenspan's speech was more upbeat about the future prospects led to a shift in sentiment about next week's Fed rate decision. In the latest Reuters poll, 22 out of 24 dealers anticipate the Fed holding rates steady at their monetary policy meeting on January 30, and moreover expect the balance of risks to be tilted toward weakness. 20 dealers project the Fed Funds rate at 1.75% by the middle of the year, while 3 see the Fed Funds rate at 1.50%. 21 dealers estimate the Fed Funds rate at 2% or higher by the end of the year, as 3 foresee rates unchanged at 1.75%.

The Japanese currency sank over half-a-yen to a new 3-year low of 134.82, discouraged by Japanese Finance Minister's comments overnight that his policy was not to intervene in forex markets, but to let them decide exchange rates. Traders interpreted his remark as a signal to unload the yen. Resistance is eyed at 135.0 and 135.50. Support holds at 134.0, 133.60 and 133.0.

The euro rose by about one-third cents from its 1-month low of 87.53, underpinned by European Central Bank Vice-President Noyer's declaration in favor of a strong euro and that the ECB believes the European economy will recover this year. Noyer explained further that the single currency has sufficient room to rise without hurting industry. As for inflation, Noyer reiterated that Eurozone CPI should drop "clearly below 2%" after Jan-Feb and stay there.

Nonetheless, the euro stayed under pressure by yesterday's comments from ECB President Duisenberg that implied that interest rates would be left unchanged in the near future given that the Eurozone is showing some signs of a gradual economic recovery this year, and that it is neither in a recession nor will it enter a recession. Traders also attributed the euro's decline to mounting concerns about the Argentina situation that may also have incited the sell-off in the single currency. Resistance is viewed at 88.15, 88.60 and 89.10-- the 50% Fibonacci retracement of the move from 82.25 to 95.96. Support is seen at 87.50-- the 31.8% Fibonacci retracement of the move from 82.25 to 95.96, backed by 87.0 and 86.80.

The pound hovered just above its 1-1/2 month low of 1.420 against the dollar, weighed by a British Chambers of Commerce survey that showed export sales of services firms plunged to their lowest level in a decade in Q4 2001, creating worries that the service sector is also facing weakness that is already seen in the manufacturing industry. In particular, markets are apprehensive that tomorrow's release of UK Q4 GDP will indicate sluggish growth or contract after plodding along at a 0.5% growth rate in Q3. Upside capped at 1.4250, 1.430 and 1.4360. Support stands at the 1.4220-level, which marks the 61.8% Fibonacci retracement of the move from the January 8, 2001 high of 1.5101 to the June 12, 2001 low of 1.3680. Next support is seen at 1.420 and 1.4160.

The Swiss franc retraced its moves, in effect paring its gains of almost one-half centime as it trailed the euro to a fresh 1-month low of 1.6778. USD/CHF faces resistance at 1.680, 1.6850 and 1.690. Support is seen at 1.6740, 1.670 and 1.6665.

US stocks retained their gains accumulated as a result of positive earnings reports from Nokia and other firms, better-than-expected jobless claims and hope sparked by Fed Chairman Greenspan's testimony about the economy being on the verge of recovery. The Dow rallied 65 points to 9796 and NASDAQ rose 20 points to 1942.

This week's remaining key US indicator is existing home sales. From the Eurozone, major data due for release consist of German PPI, Italian CPI, Italian retail sales and Spanish PPI. The release of consumer prices in Japan is expected to reflect the prolonged deflationary spiral that is adding to their economic woes.

January 24, 7:00 AM: EUR/$..0.8756 $/JPY..134.40 GBP/$..1.42299 $/CHF..1.6762

USD Well Bid Before Greenspan Heads to the Hill by Jes Black

At 8:30:00 AM US Jobless Claims (exp 385k, prev 384k) Event: At 10:00 AM Greenspan speech

The dollar broke through overnight highs against the European majors and climbed to a new 39-month high of 134.77 yen ahead of a much-anticipated speech by Fed Chairman Greenspan today at 10:00 AM. The speech before the Senate Budget Committee is expected to be more upbeat than his last, but dealers are likely to hold back on further dollar bidding as they pay heed to Greenspan's words.

Gains in USD/JPY outpaced the crosses, which actually fell to 3-day lows. EUR/JPY fell to a low of 117.60 from an overnight high above 119.00. GBP/JPY also fell to a low of 191.05 after hitting an overnight 30-month high of 192.20 on weak yen sentiment. This divergence is one of the catalysts to the dollar's strong gains against EuroFX today.

EUR/USD fell to a 1-month low of 87.59, dangerously close to key channel support at 87.50 which marks the 31.8% Fibonacci retracement of the move from 82.25 to 95.96. A break below that level would likely call upon further steep losses as the single currency has consistently failed to maintain above 90-cents. Temporary moves higher are not seen by the market as indicating strength, and are regarded as selling opportunities, dealers say.

The euro is likely to remain under pressure in the near term after sliding across the board on Wednesday following European Central Bank president Duisenberg's assertion that interest rates are on hold for the time being and that Germany's rising budget deficit was a further concern. By straightjacketing Germany, the ECB has nearly assured that the economy's engine of growth will continue to lag behind the rest of the Eurozone.

A more positive response is expected from Greenspan today after markets concluded that the Fed Chairman probably sounded more pessimistic about the economy than he intended in his speech on January 11. Moreover, given the recent squabble between Democrats and Republicans over who wasted the surpluses, Greenspan is also is likely to be questioned on his support for last year's tax cuts which Democrats claim are responsible for the elimination of budget surpluses and subsequent return to deficits.

The US budget surplus was once projected to total more than $5 trillion over the next 10 years, but recent estimates by the Senate Budget Committee show that the recession is likely to cost $1.366 billion on top of the $1.683 bln that will go to present and future tax cuts. Senate majority leader Daschle is likely to argue for a suspension of future tax cuts. But, Greenspan may reiterate his support for tax cuts to hasten and ensure a rebound, especially since it would spur consumer spending and stem the reduction in business investment. He will also likely say that the budget became a deficit due to the recession, and the resultant war following the September 11 attacks.

Nevertheless, the recent budget deficits projected by the CBO on Wednesday sent the bond market reeling as interest rates on 10-year Treasuries jumped to almost 5% from 4.91%, as the deficit figures were higher than some analysts predicted. This could also be a point of contention among Democrats who know Greenspan to endorse lower long term interest rates over deficit spending.

Meanwhile, markets will also listen to Greenspan's assessment of the economy to gauge whether there is a chance of a rate cut at the Jan 30 meeting. Interest rate futures are pricing in only a 22% chance, leaving the majority to believe rates will hold steady at 1.75%, a 40-year low. However, since the dollar index is trading near 6-month highs, most dealers are now divided over whether a further rate cut would help the dollar.

Following Greenspan, the market is likely to react to earnings announcements and the economic outlook from companies such as Eli Lilly, Eastman Kodak, Gateway, JDS Uniphase, McDonald s, Nokia, Phillips Petroleum, PMC-Sierra, Qualcomm and R.J. Reynolds Tobacco Holdings, who are reporting today. But it is Greenspan's assessment of the economy that is likely to direct Wall Street and the dollar.

While most believe the recession will be over this year, the key concern now is that economists and investors are again uncertain as to how strong growth will be when it resumes. The first question is whether investment spending will recover substantially now that inventory liquidation has run its course? The second question is whether consumer final demand will be strong enough in 2002 to warrant new business spending?

The risk is that consumers will be slow to take on additional debt, given their current debt loads, and this will cause the recovery to take another fall called a double dip - until there is a more profound correction from past over investment. This can be seen in recent Wall Street losses as investors question the likelihood of future earnings growth this year.

GBP/USD broke below key support at 1.4220 and plunged to a day's low of 1.4202 after the UK's BCC said service firms export sales and orders reached rock bottom with the export balance at -7 vs +1 in Q3. BCC says circumstances continue to be dire and sterling's technical position vs the dollar looks likely to come under further strain if it cannot maintain above 1.4220, which marks the 61.8% Fibonacci retracement of the move from the January 8, 2001 high of 1.5101 to the June 12, 2001 low of 1.3680. Next support is seen at 1.420 and 1.4160. Upside capped at 1.430, 1.4360 and 1.440.

USD/CHF also regained its bullish momentum after a 7 franc surge in late December retraced back to 1.6350 earlier this month. Swissy rose to a 3-week high of 1.6778 after surging back through resistance at 1.6725. Support is seen at 1.6725 followed by 1.6660/80.

January 25, 2:00 AM: EUR/$..0.8776 $/JPY..134.70 GBP/$..1.4239 $/CHF..1.6745

European Forex Trading Preview by Jes Black

At 2:00:00 AM Germany Dec Import prices m/m (exp -0.2%, prev -0.5%) Germany Dec Import prices y/y (exp -4.8%, prev -6.6%) Germany Dec PPI m/m (exp -0.3%, prev -0.3%) Germany Dec PPI y/y (exp 0.1%, prev 0.1%) At 4:30:00 AM UK Q4 GDP q/q 1st est (exp 0.1%, prev 0.5%) UK Q4 GDP y/y 1st est (exp 1.8%, prev 2.2%)

The dollar attempted to break key resistance at 135 yen in Tokyo trade today as traders rallied behind the greenback following Thursday's speech by Fed Chairman Greenspan. USD/JPY rose to a new 3-year high of 134.93 while USD held onto gains vs. the European majors. However, traders were nervous to push the dollar beyond 87.50 cents vs the euro and $1.42 vs the pound, which mark key support levels for the EuroFX.

The Japanese currency sank over half-a-yen to a new 3-year low of 134.82, discouraged by Japanese Finance Minister's comments overnight that his policy was not to intervene in forex markets, but to let them decide exchange rates. Traders interpreted his remark as a signal to unload the yen. Resistance is eyed at 135.0 and 135.50, followed by and chart targets around 135.85, 136.05 and even 137.20. Support holds at 134.0, 133.60 and 133.0.

EUR/JPY is trading around 118.15 after falling to a day's low of 117.82 in Tokyo trade after it failed to hold onto this week's gains above 119.00. Interestingly, EUR/JPY didn't get much of a boost from Wednesday's Financial Times, in which top financial diplomat Kuroda wrote the euro is "significantly undervalued," and that the introduction of euro notes and coins should lead to appreciation of the single currency. EUR/JPY rose to a 3-week high of 119.15 on the news but failed to even test this month's 2-year high of 119.71. Support is seen at 118.00, and 117.80. Resistance is seen at 118.30 and 118.65.

The renewed slide in the yen comes on the back of the market's belief in the US administration's stance on a strong dollar and a tolerance for a weak yen. US Treas Sec O'Neill has tried to play down the FX card by saying the US is only likely to support yen weakness if it means Japan forces banks to dump bad loans, accelerates structural reforms and deregulates the markets, like the US has done. O'Neill also pointed out on Wednesday the need for Japan to open up more markets to foreign competition and for monetary policy to respond to the deflationary crises.

EuroFX remained in a tight range against the dollar on Thursday and early Friday as consolidation followed Wednesday's sharp drop vs the greenback. EUR/USD fell to a 1-month low of 87.55, dangerously close to key channel support at 87.50 which marks the 31.8% Fibonacci retracement of the move from 82.25 to 95.96. A break below that level would likely call upon further steep losses as the single currency has consistently failed to maintain above 90-cents. Temporary moves higher are not seen by the market as indicating strength, and are regarded as selling opportunities, dealers say. Support is seen at 87.38, 87.0 and 86.80. Resistance is viewed at 88.15, 88.60 and 89.10-- the 50% Fibonacci retracement of the move from 82.25 to 95.96.

The euro stayed under pressure by yesterday's comments from ECB President Duisenberg that implied that interest rates would be left unchanged in the near future given that the Eurozone is showing some signs of a gradual economic recovery this year, and that it is neither in a recession nor will it enter a recession. Traders also attributed the euro's decline to mounting concerns about the Argentina situation that may also have incited the sell-off in the single currency.

Sterling also hovered just above its 1-1/2 month low of 1.420 against the dollar, as EUR/USD weakness and a British Chambers of Commerce survey that showed export sales of services firms plunged to their lowest level in a decade in Q4 2001, weighed on the pound. Support stands at the 1.4220-level, which marks the 61.8% Fibonacci retracement of the move from the January 8, 2001 high of 1.5101 to the June 12, 2001 low of 1.3680. Follow up support is seen at 1.420 and 1.4160. Upside capped at 1.4250, 1.430 and 1.4360.

Meanwhile, USD/CHF failed for the third time in a day to break resistance at 1.6775 after breaking key resistance at 1.6725 overnight. USD/CHF faces resistance at 1.6775, 1.6850 and 1.690. Support is seen at 1.6725, 1.670 and 1.6665.

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