Dollar edges upward as rate cut view eases

[ACMforex]

The Dollar traded near six-week highs against the Euro and a three-month peak against the Yen on Tuesday as trader s further trimmed expectations of a Federal Reserve interest rate cut this year.
Investors also focused on the first day of a two-day meeting between US Treasury Secretary Henry Paulson and Chinese vice Premier Wu Yi in Washington. Paulson warned the Chinese delegation Washington was growing increasingly impatient for Beijing to speed up policy changes that would help narrow the record US trade deficit.
The Euro has fallen more than two cents from its record high against the Dollar as speculators reduced bets on a further strengthening in the Euro-zone currency, which had swelled to a record high last week by one industry measure.


News and Events:
The Dollar traded near six-week highs against the Euro and a three-month peak against the Yen on Tuesday as trader s further trimmed expectations of a Federal Reserve interest rate cut this year. Unexpectedly resilient US economic data has prompted investors to scale back the implied chances of a Fed easing this year to around 70% from 100% at the beginning of the year.
Investors also focused on the first day of a two-day meeting between US Treasury Secretary Henry Paulson and Chinese vice Premier Wu Yi in Washington. Paulson warned the Chinese delegation Washington was growing increasingly impatient for Beijing to speed up policy changes that would help narrow the record US trade deficit. Analysts said the talks will be closely watched for any signs China is willing to let its currency strengthen more rapidly after last week's widening of the Yuan's daily trading band against the Dollar to 0.5% from 0.3%.
UsdChf was unchanged at 1.2302 after a report quoted Swiss National Bank President Jean-Pierre Roth saying the central Bank must be “particularly vigilant” on the inflation risk posed by the Swiss. The Euro, which on Monday rose to its highest since August 1998 against the CHF, tumbled to an intraday low of 1.6530, before trading back up to 1.6547. The Euro has fallen more than two cents from its record high against the Dollar as speculators reduced bets on a further strengthening in the Euro-zone currency, which had swelled to a record high last week by one industry measure. In fact, Euro long positions have become so extended that even a unexpectedly strong reading in the Zew survey of German investors sentiment, which rose to an eight-month high in Aprils, failed to give the currency a boost on Tuesday. UsdJpy was slightly up on the day at 121.71, new three-month high.

Today's Key Issues (time in GMT):

08.30 ECB's Tumpel-Gugerell, EU's Almunia speak in Tallinn

08.30 GB Bank of England Minutes for Monetary Policy Meeting

10.00 Euro-Zone Industrial New Orders 1.1% vs -0.7% (MoM)
10.00 Euro-Zone Industrial New Orders 6.9% vs 4.7% (YoY)

12.30 CAD April Leading Indicator 0.4% vs 0.4% (MoM)

14.30 US Fed hosts Open Board Meeting on truth-in-lending regulations

15.45 US Treasury Secretary Paulson meets with Chinese Officials in Washington




The Risk Today:

EurUsd The sharp break from 1.3612 is holding just on May 11 1.3458 low. Only a break there would undermine the underlying bullish long-term trend and shifts focus to 1.3371 (38.2% retracement of 1.2865-1.3683). Until then, look for a move above last Thursday's 1.3545 high to revive the bull trend and bring focus back on the 1.3623 resistance.

GbpUsd remains heavy below 1.9875, keeping its focus on 1.9659, the 50% retracement of the 1.9184 to 2.0134 advance. Only a return above last week's 2.0000 high would reverse the immediate heavy tone originating from the 2.0133 trend peak. Initial resistance cuts in at 1.9792.

UsdJpy is testing resistance at the 121.64 February 22 reaction high. Penetration there would shift focus to the January 122.22 top. Initial support holds 120.54 level.

UsdChf maintained a bullish tone and pushed above the 1.2285 early April high. Further gains beyond this level suggest the advance is more meaningful than just a correction and would target 1.2356. Initial support is 1.2196 before 1.2142.


Resistance and Support:

By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland