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By John Hardy
Research Analyst

EUR/USD may slip marginally below 1.1720 support, but uptrend should remain in tact. USDJPY may be set to break 108.25 low

Published: Oct. 27 2003, 13:50 GMT
EUR has been under pressure from bullish equity markets and the resurgent JPY, but we expect key support to hold.





FX New York

The outlook for the remainder of the day is the same as outlined this morning. EURUSD may slip slightly below the 1.1720 support, but we remain bullish above our 1.1670 stop level, Meanwhile USDJPY looks set to break below its 108.25 low later today, though short term shorts should keep a tight stop loss on this one at 108.75.

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FX Snapshots Europe

With the equity selloff going into American trading hours on Friday, it looked as if the USD weakness would persist and we would end the week at the recent high's in the mid 1.18's in EURUSD. However, the powerful equity rally towards the end of the American trading day saw the USD heavily bid on profit-taking and maybe even a new round of speculative longs. The Japanese Yen was perhaps the real news, as it recovered from its recent selloff in style and made strong gains against both USD and the other majors. The equity markets will likely determine the fate of the currencies today, as it was clearly the US equity rally that established the USD strength on Friday and the strong performance of Japanese stocks in Asia's Monday helped bolster the JPY. The latest pattern seems to indicate that strong equity markets favor USD and JPY, while weak equity markets favor EUR and CHF.

See the individual instruments for specific comments on each currency pair.

John J. Hardy
Saxo Bank Market Strategies

(Note - John J. Hardy is sitting in for Robert P. Balan for this week (Oct. 27 to Oct. 31},. Mr. Balan will return on Nov. 3},










Euro/US Dollar
EURUSD (1.1749 @ 07:32 GMT},

- EUR/USD is in a mature uptrend that we are convinced will see a further move to the upside in the medium term. The short-term lookout, however, is somewhat more cloudy. With the break of the short term 1.1755 area support Sunday night, we now must look at 1.1720 as a support level. If 1.1670 breaks to the downside, then we are likely looking at a large scale consolidation at lower levels, that, while it may last a while, should not damage the longer term, and very clear upward trend. In the meantime, we remain long and see the next trading objective at 1.20 and 1.25 to 1.27 in 1Q 2004.

Bought at 1.1801. Keep stoploss at 1.1670. Keep trading objective at 1.2000.





British Pound/US Dollar
GBPUSD (1.6941 @ 07:32 GMT},

- GBP/USD The weak EUR almost automatically means a strong GBP, and GBP/USD has so far avoided the worst of the downdraft. EUR/GBP selloffs buoy GBP/USD. The 1.6890 support should hold - we may have even seen the key test if support overnight with GBPUSD seeing 1.6910 bid - and we think that GBP/USD should have a clean shot at 1.72 to 1.73 in the coming weeks.

Bought at 1.6967. Keep stoploss at 1.6830. Keep trading objective at 1.7300.





US Dollar/Japanese Yen
USDJPY (108.64 @ 07:31 GMT},

- USD/JPY As the American equity market came roaring back to life on Friday - the JPY surged against the USD and the other majors. This shows that last week's weakness in the JPY was a simple matter of consolidation and perhaps even a dose or two of stop-running. Also boosting the JPY overnight is speculation that US Secretary Snow will testify to the Senate against Japanese interventionist policies later this week. The overnight moves appear to be quickly putting the USD/JPY downtrend back on track. It may initially fail a test of the 108.25 low, which is the only support level left before the brush is cleared for a quick move to 106.00 over the next couple of weeks. Sell the bounces.

Sell at 108.75. Initial stoploss: 109.85. Trading objective: 106.25.