[ProfileOou]

The USD has taken a bit of a tumble overall in the overnight session, with only the GBP losing ground (weaker than expected GDP and speculation – downplayed by one ratings agency – that the UK AAA rating could be undermined by the
government’s borrowing plans). Better IFO data helped underpin the EUR tone but stronger data should have been no real surprise after indications from other German and European confidence data earlier in the week. The USD’s defensive tone perhaps reflects simmering concerns over the bank stress tests (we get the methodology today), the looming G7 meeting (the risk that China may hold forth again on alternatives to the USD as the global reserve currency) and possibly yesterday’s focus on the BoA/ML deal. Note that Chinese comments overnight
indicated a preference for high quality assets in its reserves and revealed a big jump in gold holdings – which it is presumably using as a hedge against its USD-denominated assets. For EUR/USD, we see short term resistance at 1.3270/75 (76.4% retracement of the past few days’ sell off) and then 1.3380/90 – key trend resistance off of the December/March/April highs. Support is at 1.3200/20.

USD/JPY continues to look quite heavy overall; the medium term technical picture is turning lower, and the overnight news has added to the bullish JPY momentum in the short term at least. The Japanese financial authorities are looking at severely reducing the amount of leverage that domestic FX margin traders could access (currently 100-600 times principal, according to local press), which is potentially a big drag on the growing domestic “carry trade” play. Also, reports suggest weak pick up for this week’s large investment trusts. Japanese investors prefer to keep their money at home, it seems. Some look for a fairly swift move back
to the mid 94 area at least for USD/JPY.