US Trading Preview

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Interest Rates US: Japan: Eurozone: UK: Switzerland: 2.5% 0.15% 3.7=
5% 4.5% 1.75-2.75% [IMAGE] =09 [IMAGE] USD Adds To Gains As Growth=
Concerns Hurt EUR, JPY October 22, 7:00 AM: EUR/$..0.8976 $/JPY..121.66 G=
BP/$..1.4310 $/CHF..1.6449 USD Adds To Gains As Growth Concerns Hurt EUR, =
JPY by Jes Black At 10:00:00 AM US Sept. Leading Indicator (exp -0.4%, pre=
v -0.3%) At 2:00:00 PM US Sept Fed Budget (exp 28.6 bln, prev -79.9 bln) T=
he dollar added to last week's gains, rising across the board in both Asian=
and European trading this morning. EUR/USD revisited Friday's low of 89.67=
while the dollar continued to test heavy resistance around 121.70 yen. Dea=
lers drove the dollar higher for both internal and external reasons. Helpin=
g the dollar was the US equity market's resilience last week in the face of=
the first barrage of Q3 corporate earnings reports. Anthrax scares also fa=
iled to move the market by the end of the week, thereby helping the dollar =
despite the obvious risks of bio-terrorism. With the risk-aversion problem =
fading for the dollar, dealers have reassessed relative growth rates amongs=
t the majors and found the US economy to have better long-term prospects. =
Weakness in the other major currencies can be attributed to the underlying=
market perception that aggressive fiscal and monetary policy will pay off =
for investors who bet on the US recovery. Last Friday's German Ifo survey a=
dded weight to that view. The September survey posted the worst figure in 8=
years and the biggest point decline in 28 years, as it fell to 85.0 from 8=
9.5. This put the market on recession watch, as it reinforced fears of a po=
ssible contraction in German growth for Q4, which would put even Finance Mi=
nister Eichel's 0.75% 2001 growth target at risk. The Ifo report has also s=
haken confidence that the Eurozone economy would outpace the US over the ne=
ar-term and has increased the risks of a contraction in the Eurozone, even =
though a technical recession is still unlikely. According to the Organizati=
on of Economic Cooperation and Development's latest release, the outlook fo=
r world economies is now the worst since 1982. US 2002 growth was revised d=
own to 1.3% from the earlier 3.1%, while EU 2002 growth forecast was revise=
d to 1.5% from 2.7%. Falling economic growth has led to rising budget def=
icits and higher unemployment in the Eurozone. This has put the European Ce=
ntral Bank under intense pressure to lower rates, and it will again be at t=
he forefront of investor thought when it meets this Thursday. But even thou=
gh the Ifo survey was very bad, European Central Bank members did little to=
calm investors' nerves last week. This will likely keep pressure on the eu=
ro as markets gauge whether or not the ECB will appease politicians and bus=
inesses with another rate cut. However, even if the ECB were to lower rates=
, the market reaction could be muted because it has already been priced in =
for some time now. Therefore, the euro again finds itself in a lose/lose si=
tuation because the ECB has failed to be promote growth. Moreover, accordin=
g to data released from the Chicago Mercantile Exchange, since October 9, w=
hen EUR/USD was trading around 92.20, there has been a 20% unwinding of eur=
o long positions by non-commercial accounts. But the market is still long e=
uro and the heavy selling could continue if the ECB does not cut rates. EU=
R/USD maintained above yesterday's low at 89.67. Follow-up support is seen =
at 89.43, the descending channel support line from 93.35, followed by 88.40=
, the 50% Fibonacci retracement of the move from 83.48 to 93.45. EUR/JPY ma=
naged to recover most of Friday's losses, to regain the 109 level. Strong r=
esistance is still seen at 109.50 but further weakness in the Japanese econ=
omy will help to push EUR/JPY higher. The yen also fell against the dolla=
r to a day's low of 121.70. A sharp year-on-year decline in Japan's trade s=
urplus in September and a further drop of 0.1% in the MITI tertiary sector =
index sent the yen tumbling across the board. However, dealers say that the=
market has grown resistant to trading the yen lower because the constant s=
tream of gloomy economic data is now expected. Therefore, more rangebound t=
rade is expected in the yen this week. GBP/USD hit a fresh two-month low o=
f 1.4315 as traders also came to favor the US economy's prospects over that=
of the UK. Sterling has now confirmed its break below the 1.44 level, whic=
h is the key 38.2% Fibonacci retracement of the move from 1.37 to this mont=
h's 8-1/2 month high of 1.4836. A sustained break of the August 28 low of 1=
.4375 is seen increasing the bearish outlook for sterling. But, sterling's =
five-cent slide in two weeks may move into a stabilization period this week=
as investors contemplate the recent sell-off. Boding well for the pound is=
the fact that the Bank of England appears ready to ease monetary policy ag=
ain in order to bolster economic growth. The decline in September inflation=
below the 2.5% target will provide the central bank with leeway to cut int=
erest rates again by another 25-bp this year and the BoE's willingness to s=
pur growth (unlike the ECB) will benefit the pound. Support holds at 1.4320=
, 1.430 and 1.4265. Upside capped at 1.4420, 1.4450 and 1.4480. Against the=
euro, the pound also fell to a one-week low of 62.73 pence. USD/CHF regai=
ned Friday's highs around 1.6450 before easing back again, but is still see=
n supported above the key 1.64 level. The dollar's ability to maintain abov=
e 1.63 will be needed for it to maintain its bullish trend as it targets th=
e 1.65 level. However, any major negative developments for the US, at home =
or abroad, would quickly translate into gains for the franc. No key data w=
as released from the Eurozone or UK today making trade quiet as dealers awa=
it the US leading indicators due at 10:00 AM. The negative impact from risi=
ng jobless claims and falling stock prices is expected to push the leading =
indicators figure down 0.4% in September after a 0.3% fall in the previous =
month. Meanwhile, dealers will look to see if the dollar holds up as well =
as it did last week in the face of poor earnings reports for Q3. About half=
of today's earnings announcements will come after market close, thereby ke=
eping trading volumes light in the regular session. One major sector repres=
ented in earnings announcements after the bell today is financials, like Mo=
ody's. Because of this, dealers may look to the war in Afghanistan for an i=
ndication of the effectiveness of the US ground operation as troops search =
for Osama bin Laden. The general lack of direction from Wall Street kept As=
ian and European bourses relatively unchanged today, albeit in positive ter=
ritory. US futures are down slightly ahead of the open. =09[IMAGE] Audio M=
kt. Analysis Euro Crawls Up In Quiet Trading Articles & Ideas EURO: =
German IFO Will Remind ECB to Build Growth Dollar Comeback Stopped by Ri=
sk of Terrorism Articles & Ideas Forex Glossary Economic Indicators=
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