Dealers report low volumes in early trading and tight ranges around the NY close. The EUR/USD has traded 1.2758/69, the AUD/USD 0.7668/78, the NZD/USD 0.6180/91, while the USD/JPY was marked down to 114.48 in the pre-market, but has traded 114.61/67 since the official opening. Sentiment towards the USD is negative, after the price action in the latter part of last week and the weak data on Friday, but Asia is expected to start the week with a session of range trading.

Data from Japan’s Statistics Bureau came in generally weaker than the market had expected but in line with IFR’s forecasts. Core consumer price inflation remains firmly in the lower half of the Bank of Japan’s implicit 0-2% inflation target, with core Tokyo prices up 0.4% in July and core prices for the whole country up 0.6%. While overall prices rose 1.0% on year in June, as IFR had expected, but much firmer than the median market forecast at 0.6%, they did fall over the month so the jump mainly reflects base effects rather than any acceleration in inflation in recent months. Companies still enjoy minimal pricing power in the face of weak retail demand. Household spending fell back in June as IFR had expected, with spending by all households dropping 0.9% over the month and 2.2% from a year ago (IFR had looked for a 2.1% decline while the market expected a 1.7% fall), while wage-earner household spending slumped 1.3% on the month and 3.4% from a year ago, again in line with IFR’s forecast for a 3.0% fall. Over the quarter, household spending rose 0.6% after three negative quarters, but wage-earner households cut spending by a further 1.1% after a 3.1% fall in March. And with job creation remaning incredibly weak–employment rose a mere 0.3% from a year ago in June, weaker even than IFR’s 0.4% forecast– spending looks unlikely to improve much in coming months. Unemployment jumped back to 4.2% from the eight-year low of 4.0% hit in May (IFR looked for 4.1% while the market expected 4.0%), while only 340,000 jobs have been created over the first half of the year, only marginally better than the 270,000 increase in the same period of 2005. The data provided little evidence that the economy is improving; instead, prices continue to flirt with deflation, the labour market remains weak, and that continues to hamper any improvement in household spending. Further details and tables on See 2388 or See 26290

USD/JPY Looks to be in a vise with orders building on both sides of the market. Japanese importers were good buyers early and pushed the market higher. The effort was supported by reports out of Singapore of MAS intervening in USD/SGD (on the buy side). Comments from Japanese FinMin Tanigaki that he favored an eventual rise in the consumption tax to 10% also weighted on JPY. Good offers were noted on the move up to the 116.40-45 level with a Japanese securities house a noted seller. Some stops are noted above 116.50 up to 116.80 but mixed in with offers. More stops are seen above 117.00 and large at 117.15-20. Bids below from Japanese importers continue to be noted towards 116.00. Option players also are seen with bids below this level. USD/JPY currently trades 116.24/27.

Tokyo, Jul 21. Data from MoF for the week-ended July 15 show Japanese investors paring down foreign bond positions and foreign investors paring down Japanese stock positions in a large way. On the latter, foreigners sold a net Y316.6 bln in Japanese equities during the week. On the other side of the ledger, Japanese investors too look to have pared down overseas bond portfolios a bit, selling a net Y18.9 bln. This is not all that surprising what with large EZ bond redemptions this month. Some of the proceeds were undoubtedly repatriated. That said, fresh interest from Japanese investors was also noted, limiting the amount of net sales. To wit, expectations are for net buys in the current week on investment trust and other Japanese demand despite even more EZ bond redemptions. GBP, AUD and NZD assets also look to have been bought in the current week.

The rise in the USD index today is also adding to the strong performance of USD/JPY which has seen little pullback and has extended highs to 117.45, stalling just ahead of 117.50 barrier options. The USD index has traded above monthly resistance at 87.04 and is at the highest levels since April. Analysts are targeting further gains above 88.00. Adding to USD support is the US ten-year bond yields which remain near session highs of 5.136% and are attempting to edge higher. Two-year yields have just hit fresh highs of 5.183%.

The BOJ proved how determined they were to keep rates low in Japan, pumping in extra funds into the banking system twice overnight after overnight call rates rose above 0.25%. USD/JPY resistance remains at 117.75 on a break of 117.50 with option defense tipped ahead of 118.00.

The escalation of the Middle East conflict over the weekend caused early selling in the EUR/CHF, which closed in NY at 1.2617, opened this morning at 1.5607 and touched 1.5600 in early trading and now hovers above. The USD has also been generally bid in the twilight zone. The EUR/USD opened at 1.2655 and has trades towards the base of a 1.2636/59 range, the USD/JPY opened at 116.10/15 and trades towards the top of a 116.08/37 range, while the AUD/USD has been sidelined 0.7526/30. Today is a Tokyo holiday, so liquidity will be at a premium in the Asian session.

we have closed EURUSD ay 1.2677 with profit +8 pips. cause bears can’t break support 1.2665.
Analytics say that big banks bid at 1.2665.