Investor attention remains focused on the turmoil around Fannie and Freddie and fears about more credit losses at regional banks drove the Dollar sharply lower a day ago, with the Euro hitting a record high at 1.6037. But concerns about the US financial sector receded a bit on Wednesday after Wells Fargo, the fifth-largest US bank, raised its dividend despite a 23% decline in profit caused by bad loans. Federal Reserve Chairman Ben Bernanke reiterated to a House of Representatives panel on Wednesday that the risks to US growth have increased along with upside inflation risks, mirroring remarks he made a day earlier before the Senate. Analysts said FX investors were increasingly certain of at least one Fed rate hike before the year is out. US short-term interest rate futures are pricing in a 76% chance that the Fed raises interest rates from their current 2% by December.
News and Events:
The Dollar rose on Wednesday, moving further from a record low against the Euro, as a slide in Oil prices and surprisingly strong earnings at Wells Fargo & Co reduced fears about the US economy and financial sector.
US stocks also rallied, while the Dollar got an added boost after minutes from the Federal Reserve's June meeting showed officials believed inflation pressures meant the next interest rate move was likely to be an increase. With separate data showing US consumer prices rose last month at their fastest rate since the aftermath of Hurricane Katrina in 2005, analysts said FX investors were increasingly certain of at least one Fed rate hike before the year is out. US short-term interest rate futures are pricing in a 76% chance that the Fed raises interest rates from their current 2% by December.
EurUsd was down 0.58% at 1.5825 as North American trade wound down, well off a record high 1.6039 set a day ago. UsdJpy was up 0.32% at 105.10 and UsdChf was up 0.85% at 1.1077. GbpUsd fell 0.3% to 1.9996.
Investor attention remains focused on the US financial sector particularly after the US government was forced to come up with a rescue plan for mortgage finance giants Fannie Mae and Freddie Mac, just as one of the country's biggest mortgage banks, Indy Mac, collapsed. The turmoil around Fannie and Freddie and fears about more credit losses at regional banks drove the Dollar sharply lower a day ago, with the Euro hitting a record high at 1.6037. But concerns about the US financial sector receded a bit on Wednesday after Wells Fargo, the fifth-largest US bank, raised its dividend despite a 23% decline in profit caused by bad loans.
Federal Reserve Chairman Ben Bernanke reiterated to a House of Representatives panel on Wednesday that the risks to US growth have increased along with upside inflation risks, mirroring remarks he made a day earlier before the Senate.
Today's Key Issues (time in GMT):
09:00 CHF July ZEW Investor sentiment vs -63.8 in June
12:30 USD June Building permits 960k vs 978k
12:30 USD June Housing starts 960k vs 975k
12:30 USD weekly Initial claims 380k vs 346k
12:30 CAD May Securities Transactions C$3.7B vs C$9.75B
13:10 USD Fed’s Kroszner debates depository institutions
14:00 USD July Philadelphia Fed business index -15 vs -17.1
13:00 USD May Net L-T flows $85B vs $115.1B
13:15 USD June Capacity utilization 79.3% vs 79.4%
13:15 USD June Industrial output 0% vs -0.2% (MoM)
14:30 CAD Bank of Canada Monetary Policy Report
17:00 USD July NAHB housing market index 18 vs 18
The Risk Today:
EurUsd: Market hit 1.6039 high on Tuesday. This marks initial resistance over 1.6000 Pivot point resistance. A break there would open the way to key resistance 1.6200. On the downtrend, return below 1.5800 will undermine the recent uptrend. Any weakness may bring back 1.5400 – 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low.
GbpUsd: Cable is getting over trading range 1.9400 – 2.0000. It hit 2.0158 high on Tuesday. Key level holds again 2.0100. On the downside, only a return below 1.9649 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Initial support holds 1.9649 July 7th low. Strong support holds 1.9363 20th February and 14th May low.
UsdJpy: Last 3-month up-trend has been ended as market broke down 105 level. Further profit taking would push the market into 100 – 104 consolidation trading range and toward 100 level. Renewed advance over 105 would put mid-June 108.59 resistance and 110.10 strong resistance (Trendline) into focus ahead of 111.92 early January high.
UsdChf: Market hit 1.0013 low on Tuesday. Further weakness below 1.0000 may open the way toward 0.9637 17th March low. Renewed strength over 1.0200 would reopen the 1.0200 – 1.0600 consolidation range. Initial resistance holds 1.0353 9th July high.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland
FX market Dollar fears receded after Oil slide and Wells Fargo results
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