EUR/USD
Extends the strong recovery off 1.3752 to bring the 1.4000 level back into focus. This rally keeps the dominant uptrend intact, and a break through 1.3988 would re-open last week's high at 1.4036, threatening further gains towards the 1.4100 level. The 1.3860 area will look to contain weakness, to protect the 1.3752 low.
GBP/USD
Stages a corrective recovery off 1.5978 towards 1.6125. However, the 50% Fibonacci retracement level of the 1.6344/1.5978 setback at 1.6160 is likely to limit corrective strength. Friday's weakness confirmed a bull failure at the 1.6344 high, and a return to retest the 1.5978 low cannot be ruled out. Only a sustained break above 1.6160 would lift the tone.
USD/JPY
Drifts lower off 82.46 to put pressure on support at 82.04. Further weakness is expected to retrace the rally off the current session's 2011 low at 80.60, exposing 81.79 and the 81.53 area, which incorporates both a 1.618 Fibonacci extension target and the 50% Fibonacci retracement level. A push above 82.22 is required to lift the tone and open the 82.46 high.
AUD/USD
Friday's powerful bullish outside day gives the near-term a positive tone, and a retest of resistance at 1.0164 is expected. The Mar. 1 reaction high at 1.0203 is also vulnerable, and the threat is for further gains towards the key December 2010 reaction high at 1.0258. Corrective weakness will attract support while above 1.0015, and only below there would Friday's low at 0.9960 be exposed again.
FOREX FOCUS
Buying time was never a good idea for the euro and now it looks as if time has run out. For months, the single currency has found support, not only from hopes that the European Central Bank will remain hawkish on monetary policy but also from hopes that European Union leaders would come up with a longer-term solution to the sovereign-debt crisis. However, the longer the leaders have waited to negotiate a compromise between the 'peripheral' debtors and the core countries, the more difficult the whole process has become. Instead of the passing months bringing an economic upturn that would ease the financial stresses, the gap between the richer and the poorer countries has widened and political positions on both sides have more than just hardened. In the case of Ireland, the government has fallen and in Germany a new law could be passed by the Bundestag next week that will further limit Chancellor Angela Merkel's ability to negotiate. The gradual realization in the global investment community that the debt problems of the euro zone could still get worse can be tracked through the steady rise in the cost of insuring the debts of peripheral debtors as well as even some of the core countries. As EU leaders gather in Brussels for their latest round of talks on the issue, the rise in Portuguese bond yields close to their record highs suggest just how much disappointment in the political process has been built in to financial markets. So far, the euro itself has performed remarkably well, rising against the dollar for most of this year both on hopes that the politicians will pull some last-minute rabbit out of the hat and that the hawkish ECB will start raising interest rates, making the euro more attractive, as early as next month. This has helped push the single currency up to just under $1.40.
EUROPE
The yen stabilized in European trading Monday, after the Bank of Japan took unprecedented steps to boost market liquidity following Friday's earthquake and tsunami. Meanwhile, the euro remained well supported against the dollar after news over the weekend that euro-zone leaders agreed to expand their temporary bailout fund to EUR500 billion. Data-wise, euro-zone industrial production data are due for release at 1000 GMT. Markets are also set to keep a close eye on the meeting of euro-zone finance ministers and the ongoing situation in Japan and Libya.
ASIA
The yen stabilized Monday morning in Asia after a choppy start to the day, as the Bank of Japan took unprecedented steps to boost market liquidity following Friday's earthquake and tsunami. In announcements throughout the morning, the BOJ offered to inject a record 18 trillion yen into money markets -- Y15 trillion in same-day funds through three separate operations, plus three trillion yen in repurchase agreements. The yen had spiked sharply upward in early trading on expectations of repatriation flows, but soon erased those gains and traded in a tight band from around 0100 GMT. As of 0450 GMT, the U.S. dollar was trading around Y82.12, up from an earlier low of Y80.60, the greenback's lowest level against the yen since Nov. 9. While repatriations would tend to buoy the yen, the BOJ liquidity injections, combined with signals from Japanese officials that they could intervene in currency markets if necessary, kept the U.S. dollar supported for now. A strengthening yen could hurt Japan's export-dependent economy. Meanwhile, Chinese Premier Wen Jiabao, in closing remarks to China's annual legislative gathering, stressed that the yuan's appreciation must be gradual. Wen said the government needs to consider the impact on employment, business and overall social stability. That could point to a slower pace of appreciation, especially after China posted a trade surprise deficit of $7.3 billion in February. The dollar/yuan central parity rate was set Monday at $6.5701, vs 6.5750 on Friday. In Japan, Finance Minister Yoshihiko Noda said Monday morning that authorities will monitor yen levels for now. A senior Finance Ministry official warned Monday morning of the possibility of intervention to stem a strong yen rise. Authorities "will take decisive steps if necessary," he told reporters at the Finance Ministry. A separate government official told Dow Jones Newswires that he was concerned about speculative moves in the yen. Some investors seem to "want to push the yen higher at all costs," he said.
WORLD
Japan's yen surged against other major currencies Friday in New York after a devastating earthquake set off expectations that companies will repatriate yen to help pay for rebuilding efforts. Traders swiftly sold the yen just after the earthquake before reversing course. The dollar fell about 1.4% against the yen on the day, while the euro was down about 0.5% against the yen. "Speculation in advance of repatriation, that's what is driving the yen up right now," said Jeffrey Young, head of North American FX Research at Barclays Capital in New York. Traders are betting that insurers with exposure to Japan and companies based in the country will soon need to buy large quantities of yen to cover damages and pay out insurance claims. They would be forced to exchange foreign currencies for yen, further hurting the dollar, euro and other major units. But it is still too early to assess the extent of the damage and how much money may be needed to rebuild parts of the country that were destroyed by the earthquake and tsunami it triggered, leading to some uncertainty about longer term currency moves. "I'm personally not expecting a huge yen appreciation, but the net impact is probably negative for dollar/yen," said a portfolio manager at a London-based hedge fund. This source expects some Japanese firms to repatriate cash, but only gradually - and he doesn't expect a massive flow of yen back into Japan. The long-term effects on Japan's economy and the yen were still not known. But Moody's Investors Service said it was highly unlikely the country's debt rating would be affected by the earthquake. Japan is trying to emerge, like much of the world, from an economic downturn. Analysts said money spent to rebuild the parts of the country affected by the earthquake and tsunami could spur growth. However, it could add to the country's already high debt burden.
