USD shows sign of strength heading into the NY trading session

GBPUSD was the big looser in Europe on both stronger dollar in general and weaker then expected UK data. JPY rebounded from its recent strength on comments from Japan's ruling LDP chief.

MAJOR HEADLINES – PREVIOUS SESSION
UK

October PPI: Unadjusted output prices were -0.2% mom and 1.7% yoy from September's -0.3% mom and +1.8% yoy, and against forecasts for -0.1% mom and +1.9% yoy. Adjusted input prices were -0.1% mom and +3.8% yoy  from September's -1.8% mom and +5.1% yoy and compared to forecasts for -0.5% mom and +3.7% yoy. The lower-than-expected output price inflation will comfort the MPC, especially in light of recent remark by Bean that the MPC remains concerned with 'incipient inflationary pressures' in product markets.
The UK's Ons said the decline in output prices was largely related to softer energy costs (no real surprises there). It also noted that chemical product prices dropped at their fastest monthly rate since Jan 2002. GBPUSD traded lower on mostly stops in a thin market, but should find some support in intra-day in the 1.8990-20 area. The downside should be limited until market has seen tomorrow's inflation report out of the UK.

JPY

Japanese data out late in Asian session was in line with market expectations and investors will be watching tomorrow's Q3 GDP for how strong the Japanese recovery has been so far. The JPY started in Europe on a stronger note, but comments by Japan's ruling LDP chief Nakagawa who said he was opposed to BoJ rate hike. Says deflation still not over, impact of rate hike would be 'large'. Expects fiscal 2007-08 new government bond issuance to be Y26-27 trillion. This is one example in many, where we say a Japanese official talking the JPY weaker, but we let tomorrow's data said the pace for USDJPY in the short term. We still look for close above either 118.40 or 116.50 to give a more clear short term direction.

Euro/US Dollar    

EURUSD  (1.2831 @ 13:47 GMT)

Support:

1.  1.2460 daily base which coincides with 1.2465 38% retracement

2.  1.2320 double top form march 2006

3.  1.2260 bull trend line from March 2006

4.  1.1635 38% retracement (0.8350-1.3667), also low from 2005.

Resistance:

1.  1.2940 old top from August 2006.

2.  1.2980 long term inverse head-and-shoulder target.

3.  1.3175 upper bull trend channel from March 2006.

Resist.

1.3004

1.2930

1.2885

1.2831

1.2811

1.2782

1.2708

Support

British Pound/US Dollar    

GBPUSD  (1.9035 @ 13:47 GMT)

Support:

1.  1.8520 lower end of the bear channel from early August 2006.

2.  1.8500 daily base support.

3.  1.8325 wave high from March 2005.

4.  1.8090 wave support from July 2006.

5. 1.7330 long term bull trend support from 2001.

Resistance:

1.  1.9145 Old top from August.

2.  1.9215 old top from April 2005.

3.  1.9325 wave high from March 2005.

4.  1.9550 highs from december 2004.

Resist.

1.9374

1.9243

1.9175

1.9035

1.9044

1.8981

1.8850

Support

US Dollar/Japanese Yen    

USDJPY  (117.89 @ 13:47 GMT)

Support:

1.  116.50 wave low from late October.

2.  115.55 wave low from April (key level as it would take our weeky lower high/higher high, which would confirm accelerated downside)

3.  113.35 weekly base support.

4. 109.00 key support form confirmation of a monthly downward trend.

Resistance:

1.  119.20 choppy range base from early October.

2.  119.90 old top from mid-October.

3.  121.40 old top from December 2005.

4.  1250.00 50% retracement (form 147.63-101.67).

Resist.

119.11

118.34

117.94

117.89

117.17

116.79

116.02

Support