The dollar fell to a record low against the euro and dropped versus the yen on speculation losses on debt backed by U.S. sub-prime mortgages will spread. Signs a housing slump will deepen reinforced expectations the Federal Reserve will keep interest rates unchanged this year, adding to the dollar’s decline.
Traders raised bets on further ECB rate increases after a report showed Europe’s economy grew faster than previously estimated in the first quarter. Europe’s economy is set to grow more than the U.S. for the first time since 2001 with business and consumer confidence near a six-year high. ECB President Jean-Claude Trichet yesterday said the inflation outlook �remains subject to upside risks’’.
Bank of Japan Governor Toshihiko Fukui told reporters today weak economic growth won’t determine the outcome of a rate-setting meeting next month.
News and Events:
The dollar fell to a record low against the euro and dropped versus the yen on speculation losses on debt backed by U.S. sub-prime mortgages will spread. Signs a housing slump will deepen reinforced expectations the Federal Reserve will keep interest rates unchanged this year, adding to the dollar’s decline. Analysts said; �the momentum is very much against the dollar� and �the sub-prime issue tipped euro-dollar through the old highs’’.
Against the euro, the dollar fell to $1.3784 from $1.3746 the previous day, after reaching a record low of $1.3799. Against the yen, Dollar was at 122.41 from 122.35. The dollar may fall to $1.41 per euro in the next couple of weeks, some analysts said. The dollar has dropped 1.5 percent against the euro in the past three days as Standard & Poor’s and Moody’s Investors Service said they may cut ratings on securities backed by sub-prime mortgages, which may increase losses at brokers and hedge funds that made wrong-way bets on the debt.
European Central Bank executive board member Juergen Stark said yesterday the Euro’s gains reflect �the strength of the European economy�. Comments from European officials suggest there are no concerns about the strength of the Euro, regardless of dollar weakness. Analysts added �Intervention is unlikely, so we’re free to trade euro-dollar at higher levels’’. Some analysts predict the euro will rise to $1.40 and 172 yen this month.
Traders raised bets on further ECB rate increases after a report showed Europe’s economy grew faster than previously estimated in the first quarter. Europe’s economy is set to grow more than the U.S. for the
first time since 2001 with business and consumer confidence near a six-year high. ECB President Jean-Claude Trichet yesterday said the inflation outlook �remains subject to upside risks’’.
The yen also rose against the dollar as Bank of Japan Governor Toshihiko Fukui told reporters today weak economic growth won’t determine the outcome of a rate-setting meeting next month and that Japanese companies are worried about excessive declines in the yen. Fukui spoke after the bank’s policy board voted 8-1 to keep the overnight lending rate at 0.5 percent. The lowest rate among major economies has helped push down the yen 10.8 percent against Australia’s dollar and 12.1 percent versus New Zealand’s this year. Australia’s dollar traded at 105.97 yen from 105.50 yen and New Zealand’s was at 95.41 yen from 95.82.
Today’s Key Issues (time in GMT):
12.30 US June Export Price Index 0.3% vs 0.1% (MoM)
12.30 US June Import Price Index 0.7% vs 0.9% (MoM)
12.30 US June Advance Retail Sales 0.1% vs 1.4%
12.30 US June Retail Sales less Autos 0.2% vs 1.3%
14.00 US July University of Michigan Confidence 86 vs 85.3
14.00 US May Business Inventories 0.3% vs 0.4%
The Risk Today:
EurUsd remains strong after having broken 1.3750 resistance and hit 1.3799 high yesterday new record high. A return below 1.3750 and 1.3659 former resistances will put the actual positive trend on hold. Initial minor support holds 1.3750 former trend resistance.
GbpUsd remains strong having formed a double top at yesterday 2.0365 high and the day before 2.0363. Those levels mark the actual minor resistances. Market 2.0100 former trend resistance holds initial support. A break there support will open the door back down to 2.0000 pivot point.
UsdJpy rebounded on 120.98 -121.07 low range and hit yesterday 122.59 high. Renewed strength will focus on 124.15 late June high. A break toward 124.15 will reopen the way to 125.57 December 2002 high. Initial support holds 120.98 level. A break down will put 119.55 in sight.
UsdChf remains weak after the sharp drop early this week down to 1.1993 low. Yesterday was fairly unchanged. On the recent downtrend, focus shifted on 1.1996 trend low support. Former support 1.2234 marks the initial resistance.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland