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(March 4, 2002) CURRENCIES: The U.S. Dollar Index futures rebounded early last week, however it gave up much of those gains as the week progressed. The March Japanese Yen futures established new contract lows early in the week and clawed their way back up by week's end. March Eurocurrency futures lost ground early in the week as well. The rest of the week was spent attempting to regain that lost ground.

Last week U.S. economic data continued to indicate that the U.S. economy might be on the rebound. Construction spending, personal income and personal spending were all higher than forecast. Friday the Institute of Supply Management released their monthly Purchasing Management Index. For the month of February the index had increased to 54.7 from 49.9 during the month of January. A figure over 50 indicates economic expansion. With the recent stronger than expected U.S. economic data, many traders will be watching closely to see if the Fed now shifts to a neutral bias at the next Federal Open Market Committee meeting scheduled for March 19th. February 26th the March U.S. Dollar Index futures rallied to establish a high point resistance of $120.13. The rest of the week the contract slipped back to hug the 18-day average of closes near the 119.10 level. Friday's release of the CFTC Commitment of Traders report indicated that as of Tuesday, speculators were heavily long. Monday morning, as the March U.S. Dollar Index breached the $119.10 support, I believe many were sell stops were triggered, pressuring the contract back down to its trading range from the first half of February. I now look for the March U.S. Dollar Index to challenge the February 19th low at the $118.26 level. With the stronger than expected U.S. economic data that was released last week, I look for this level to hold.

I recommend June U.S. Dollar Index call options for a long-term play. Last week the March Japanese Yen Futures rebounded from a new contract low of 7415. Ideas that the market was extremely oversold and traders moving to the sidelines ahead of the Bank of Japan's meeting last week helped offer support to the battered currency. However, the CFTC's Commitment of Traders' report, released Friday following the close of trade, indicated that as of Tuesday February 26th, speculators were heavily short. Speculative net long U.S. Dollar and short Japanese Yen positions had increased to $1.85 billion.

With a rebound in the Nikkei Monday, l now look for the March Japanese Yen to challenge the February 4th high and resistance level of 7600. However, with little change in Japan's economic situation I look for the rebound in the March Japanese Yen to be short lived. However, the Japanese government's tightening of regulations regarding short sales of stocks may offer the beleagured currency some support. Stand aside for the time being.

The March Eurocurrency softened early last week to establish a low of 86.080. The market spent much of the week rebounding and attacking the 18-day average near the 87.000 level. With a breach of the 87.000 level, I look for a rebound to the 45-day moving average near the 87.540 level.

RECOMMENDATIONS--JUNE U.S. DOLLAR INDEX--For a long-term play, I recommend buying June $122.00 call options at 75.

MARCH EUROCURRENCY--Buy long at 87.150 stop. I look for the market to rebound.

Les Jones

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