Market Rumuors

The dollar slipped again overnight despite weaker stocks which should have seen the greenback benefit from safety flows. The Dow closed down 0.2%, the Nikkei shed 0.5% and the Shanghai Composite dropped 0.7%. With that correlation seemingly broken the market turned to fundamentals. The prospect of an EU/German package for Greece is giving the single currency a lift, USD/CHF is trading weaker as SNB intervention has less and less effect, Fed's Yellen came out with dovish comments on U.S. rates overnight and in late Asia trade Tuesday the Australian central bank deputy said on fundamentals the AUD should rise. For Tuesday the charts suggest the greenback has a little further to fall against the majors as last week's gains are corrected, while data risk comes from the German Ifo at 0900 GMT.

This will be a bad week for the JPY, according to Forex Focus by Nicholas Hastings. Not only will the rash of new Toshin issues put the Japanese currency under pressure, but increasing speculation over a Chinese yuan revaluation as well as growing concern about Japanese deflation will make matters worse. This should not only ensure further JPY losses against the USD but it should push the yen down on the crosses.

While expectations for a nearer-term hike in U.S. policy rate have receded due to statements from Fed officials "that they're in no rush" to make such move, central bank's gradual mopping up of more emergency liquidity measures supporting USD, say Barclays Capital FX analysts Masafumi Yamamoto, Yuki Sakasai. "Even if the timing of a hike in the federal funds rate is put off until next year, the drawing back of dollar liquidity will make it easier for dollar interest rates and the dollar itself to be supported." USD/JPY has held above 91.00 since Fed raised its discount rate by 25 bps to 0.75% Thursday, in move seen as signaling more mopping up ahead; pair last 91.26.

USD/JPY - to consolidate while markets await further monetary policy signals from Fed Chairman Bernanke when he gives Senate testimony tomorrow. USD/JPY undermined by unwinding of JPY-funded carry trades as investor risk sentiment dented after U.S. stocks fell slightly near close (DJIA off 0.18%) despite comments from Fed's Yellen reassuring investors federal funds rate will stay ultra-low for a while. No FX impact from mixed U.S. economic data overnight: rise in Chicago Fed National Activity Index to 0.02 in January from minus 0.58 in December offset by drop in Dallas Fed production index to 2.3 in February from 7.4 in January. USD/JPY also weighed by Japan exporter sales; but downside limited by USD demand for import settlements. Data focus: 2350 GMT Japan January BOJ monetary policy meeting minutes, 1400 GMT U.S. December Case-Shiller home price index, 1500 GMT February Richmond Fed survey, February Conference Board consumer confidence index, 2200 GMT Fed's Bullard speaks. USD/JPY daily chart mixed as MACD bullish, but stochastics turned bearish at overbought. Support at 90.99 (yesterday's low); breach would expose downside to 90.54 (Thursday's low), then 90.10 (Wednesday's low), 89.69 (Feb. 16 low) and 89.56 (Feb. 12 low). Resistance at 91.48 (hourly chart), then at 91.90 (yesterday's high); breach would target 92.14 (Friday's high), then 92.21 (200-day moving average), 92.43 (Jan. 12 high) and 93.76 (Jan. 8 reaction high).

EUR/USD - to consolidate with risks skewed lower. Pair undermined by unwinding of long-EUR carry trades on diminished investor risk appetite, renewed worries over euro-zone sovereign debt problems after German Finance Ministry's spokesman said no decision has been made regarding aid for fiscally stressed Greece. Data focus: 0900 GMT German February Ifo German business climate index. EUR/USD daily chart mixed as MACD bullish, but stochastics stay suppressed at oversold. Support at 1.3570 (yesterday's low); breach would expose downside to 1.3442 (9-month low hit Friday), then 1.3420 (May 18 reaction low), psychological 1.3400 and 1.3335 (projected base of descending channel formed with Dec. 3 high of 1.5141 and Dec. 22 low of 1.4216). Resistance at 1.3653 (yesterday's and Thursday's high); breach would turn near-term outlook positive, exposing upside to 1.3789 (Wednesday's high), then 1.3801 (Feb. 11 high), 1.3839 (Feb. 9 high) and 1.3850 (previous base set Feb. 1).

AUD/USD - to range-trade. Pair undermined by unwinding of long-AUD carry trades on subdued risk appetite, softer commodity prices (CRB spot index closed down 1.02 yesterday at 276.78). But AUD/USD downside limited by Aussie-U.S. yield gap, expectations for further rate hikes by RBA this year. AUD/USD daily chart mixed as MACD bullish, but stochastics turning bearish at overbought. Support at 0.8971 (yesterday's low); breach would expose downside to 0.8877 (Feb. 16 & Friday's low), then 0.8845 (Feb. 15 low), 0.8781 (Feb. 12 low) and 0.8707 (Feb. 10 low). Resistance at 0.9024 (yesterday's and Thursday's high), then at 0.9037 (Wednesday's high, just below 61.8% Fibonacci retracement of 0.9330-0.8576 Jan.14-Feb.5 decline); breach would target 0.9072 (100-day moving average), then 0.9152 (76.4% retracement).

NZD/USD - to range-trade. Pair undermined by unwinding of long-NZD carry trades on waning risk appetite, softer commodity prices; but downside limited by Kiwi-U.S. yield advantage. NZD/USD daily chart mixed as MACD bullish, but stochastics in bearish mode. Support at 0.6988 (yesterday's low); breach would expose downside to 0.6933 (200-day moving average), then 0.6895 (Feb. 12 low) and 0.6813 (Feb. 8 low). Resistance at 0.7037 (yesterday's high); breach would target 0.7061 (Thursday's high), then 0.7079 (Feb. 16 and Wednesday's high), 0.7122 (50% Fibonacci retracement of 0.7441-0.6803 Jan. 14-Feb. 5 decline), 0.7152 (Feb. 3 high, near 55-day moving average) and 0.7178 (Jan. 22 high).

GBP/USD - to consolidate with risks skewed lower. Pair weighed by reduced investor risk appetite, persistent concerns over weak UK fiscal situation. Data focus: 1100 GMT UK CBI quarterly distributive trades survey. GBP/USD daily chart mixed as MACD bearish, but stochastics turning bullish at oversold; inside-day-range pattern completed yesterday. Support at 1.5429 (yesterday's low); breach would target 1.5345 (9-month low hit Friday), then psychological 1.5300 and 1.5271 (50% Fibonacci retracement level of advance from Jan. 23, 2009 low of 1.3500 to Aug. 5 high of 1.7042). Resistance at 1.5519 (yesterday's high); breach would target 1.5533 (previous base set Feb. 8), then 1.5687 (Thursday's high), 1.5816 (Wednesday's high), 1.5830 (previous base set Dec. 30) and 1.5848 (previous base set Feb. 1).

USD/CHF - to consolidate with risks skewed lower. Pair undermined by unwinding of short-CHF carry trades on contained risk appetite; but losses tempered by fears of more SNB CHF-selling FX intervention. Daily chart negative-biased as stochastics bearish at overbought; MACD staged bearish crossover against its exponential moving average. Support at 1.0730 (yesterday's low); breach would expose downside to 1.0644 (Wednesday's low), then 1.0623 (Feb. 11 low) and 1.0605 (Feb. 9 reaction low). Resistance at 1.0788 (yesterday's high); breach would expose upside to 1.0835 (hourly chart), then 1.0898 (7-month high hit Friday), 1.0934 (July 30 reaction high) and 1.1020 (June 24 reaction high).

USD/CAD - to consolidate with risks skewed higher. Pair underpinned by subdued investor risk appetite; but topside limited by firmer oil prices (Nymex settled up 35 cents yesterday at $80.16/barrel). USD/CAD daily chart mixed as MACD bearish, but stochastics turning bullish at oversold. Resistance at 1.0440 (yesterday's high); breach would expose upside to 1.0530 (Feb. 15 & Friday's high), then 1.0578 (Feb. 12 high), 1.0631 (Feb. 11 high) and 1.0707 (Feb. 10 high). Support at 1.0368 (yesterday's low); breach would target 1.0301 (Jan. 20 low), then 1.0246 (Jan. 19 low) and 1.0222 (Jan. 14 trough).

EUR/JPY - to range-trade. Cross undermined by unwinding of carry trades amid reduced investor risk tolerance, renewed worries over euro-zone sovereign debt problems; but downside limited by caution before U.S. Fed Chairman Bernanke's Senate testimony tomorrow. EUR/JPY daily chart still positive-biased as MACD & stochastics bullish. Support at 123.52 (Friday's low); breach would expose downside to 122.73 (Thursday's reaction low), then 122.23 (Feb. 15 low) and 121.37 (Feb. 12 reaction low). Resistance at 124.55 (hourly chart); breach would target 125.23 (yesterday's high), then 125.91 (38.2% Fibonacci correction of 134.39-120.67 Jan. 11- Feb. 5 decline), 126.97 (Feb. 3 reaction high) and 127.11 (Jan. 28 high).

EUR/GBP - to trade with risks skewed higher. Daily chart positive-biased as MACD & stochastics in bullish mode; 5-day moving average staged bullish crossover against 15-day. Resistance at 0.8815 (yesterday's high, just below 200-day moving average); breach would target 0.8846 (Feb. 11 high, near 55-day moving average), then 0.8938 (100-day moving average) and 0.9028 (Jan. 12 reaction high). Support at 0.8758 (yesterday's low); breach would target 0.8745 (previous cap set Feb. 16), then 0.8699 (Friday's low), 0.8656 (Feb. 12 low) and 0.8627 (Jan. 29 low).

"I would not expect AUD and other commodity currencies to reignite the rising trend from the first half of last year, but I would not discount a return to recent highs, or moderate out-performance in the near term," says RBS FX Strategist Greg Gibbs. For session ahead, focus is on speech by RBA Deputy Governor Battellino at around 0700 GMT. "He typically sends an upbeat or hawkish message...If he takes a question on the exchange rate, he may not even baulk at saying levels above parity are possible, even likely, like some central bankers might." AUD/USD last 0.9003.

USD/JPY falling, may fall to 89.30 (last 90.88, down from 91.13 in late NY trade Monday) due to selling by one big U.S. securities firm, probably due to profit-taking using weak Japan stocks as excuse, says senior sales dealer at major bank in Tokyo. Adds EUR/USD, EUR/JPY rising; buying by "good names" such as big hedge funds, he says. EUR/USD may rise to 1.3700 vs last 1.3666; EUR/JPY may rise to 124.50 vs last 124.23.