The Dollar slumped on Thursday, hitting its lowest level against the Euro in nearly three weeks, as investors reduced their expectations for a Federal Reserve interest rate rise this year. While the Federal Reserve on Wednesday said inflation risks had increased, it did not use language that convinced markets a rate rise was likely at its next policy meeting in August. In contrast, the ECB has repeatedly said it may lift interest rates in July to fight inflation. That helped push the Euro near a three-week high at 1.5768. The US central bank’s move to leave interest rates unchanged on Wednesday effectively ended one of its most aggressive rate-cutting campaigns, launched last September to curb economic fallout from the housing and credit crisis. US financial stocks plummeted while shares of General Motors sank more than 10%. Fitch Ratings’ downgrade of General Motors and Chrysler credit ratings also hit the Dollar, as did the Dow’s drop to its lowest level in 21 months. Oil prices on Thursday shot up to a record above $140 a barrel.
News and Events:
The Dollar slumped on Thursday, hitting its lowest level against the Euro in nearly three weeks, as investors reduced their expectations for a Federal Reserve interest rate rise this year. As US stocks slumped, the JPY and CHF gained on renewed jitters about the US banking sector and the surge in oil prices to another record high. Investors on Thursday unwound risky trades funded by these low-yielding currencies.
While the Federal Reserve on Wednesday said inflation risks had increased, it did not use language that convinced markets a rate rise was likely at its next policy meeting in August. In contrast, the ECB has repeatedly said it may lift interest rates in July to fight inflation. That helped push the Euro near a three-week high at 1.5768. The US central bank’s move to leave interest rates unchanged on Wednesday effectively ended one of its most aggressive rate-cutting campaigns, launched last September to curb economic fallout from the housing and credit crisis. With rising inflation expectations, many investors are worried that the Fed is falling behind the curve.
EurUsd ended up 0.62% to 1.5762. UsdChf dropped 1.2% to 1.0233, the lowest since June 9th. GbpUsd rose 0.65% to 1.9869, near an eight-week high of 1.9873. EurJpy also climbed to a record high at 169.47 before easing to 169.05. UsdJpy fell 0.94% to 106.85, a two-week low, as Goldman Sachs on Thursday urged investors to sell bank and automaker shares.
US financial stocks plummeted while shares of General Motors sank more than 10%. Fitch Ratings’ downgrade of General Motors and Chrysler credit ratings also hit the Dollar, as did the Dow’s drop to its lowest level in 21 months. Oil prices on Thursday shot up to a record above $140 a barrel.
Today’s Key Issues (time in GMT):
08:00 EUR May Euro-zone Current account NSA previous -7.8B
08:00 EUR May Euro-zone Current account SA previous -15.3B
08:30 GBP Q1 GDP final 0.4% vs 0.4% (QoQ)
08:30 GBP Q1 GDP final 2.5% vs 2.5% (YoY)
08:30 GBP Q1 Current account -12B vs -8.46B
09:00 EUR June Consumer sentiment -16 vs -15
09:00 EUR June Economic sentiment 96.2 vs 97.1
09:00 EUR June Industrial sentiment -3 vs -2
09:00 EUR June Services sentiment 7 vs 8
09:30 CHF June KOF Indicator 1 vs 1.09
12:30 USD May Consumption, adjusted 0.6% vs 0.2%
12:30 USD May Core PCE price index 0.2% vs 0.1% (MoM)
12:30 USD May Personal income 0.4% vs 0.2%
12:30 CAD May producer prices 1% vs 1.4% (MoM)
12:30 CAD May Raw materials prices 5% vs 5.1% (MoM)
13:55 USD June University of Michigan Condition final 71 vs 73.3
13:55 USD June University of Michigan Expectation final 50 vs 51.1
13:55 USD June University of Michigan Sentiment final 57 vs 59.8
The Risk Today:
EurUsd: Current trading range is still 1.5400 to 1.5800. Yesterday high 1.5768 is putting further upside in sight. Initial resistance holds 1.5844 June 9th high. A break up there would reopen the way up to 1.6000 Pivot point resistance ahead of key resistance 1.6200 market target. On the downtrend, weakness below 1.5400 will put the current light 2-month uptrend on hold. This may open way down to 1.5000 key level. Support holds 1.5304 13th June low.
GbpUsd: Cable broke over consolidation 1.9400 � 1.9800 range. It closes yesterday at 1.9869. On the upside, psychological 2.0000 level stays into focus. On the downside, a reversal below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Initial support holds 1.9800 former range resistance. Strong support holds 1.9363 20th February and 14th May low.
UsdJpy: Current 3-month uptrend holds but stays under 108.59 16th June high. Further advance would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high. Any profit taking to and return lower than 105 level might send the market back down to 100 � 104 consolidation trading range. Strong support hold 106.59 former resistance (38.2% retracement of 124.15 � 95.74 decline).
UsdChf: Market is currently trading in 1.0200-1.0600 range. Early January double top 1.1191 marks strong resistance. Minor support holds 1.0221 yesterday low. Initial support holds 1.0148 June 9th low. Further weakness may open the way toward 0.9637 17th March low. June 13th 1.0541 high holds initial resistance. .
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland