The Dollar fell against the Yen on Wednesday as weak economic data added to fears about the economy but gained on the Euro after Democrat Barack Obama’s decisive victory in the US presidential election. Worries about the economy cut demand for riskier assets, including those in Euros, Sterling and high-yield currencies, and prompted investors to repatriate funds into Dollars. The European Central Bank is expected to cut rates by 50bp from 3.75% today. The Bank of England is also expected to cut rates by 50 to 75bp from 4.5%. Analysts pointed out that hefty rate cuts would not necessarily hurt the currencies but could instead spark a rally as central banks prove they are taking recession risks seriously.
[B]News and Events:[/B]
The Dollar fell against the Yen on Wednesday as weak economic data added to fears about the economy but gained on the Euro after Democrat Barack Obama’s decisive victory in the U.S. presidential election.
Analysts said Obama’s historic and convincing win helped erase one source of uncertainty for financial markets and that helped boost the Dollar against most major currencies. On his first day as president-elect, Obama was greeted by reports showing employers cut 157,000 private sector jobs last month while the services sector contracted sharply.
Worries about the economy cut demand for riskier assets, including those in Euros, Sterling and high-yield currencies, and prompted investors to repatriate funds into Dollars. That anxiety also lifted the Yen. A slump in Euro zone manufacturing to a fresh decade low also weighed on the zone’s common currency and overall risk appetite, boosting expectations of at least a 50bp interest rate cut from the European Central Bank on Today. The Bank of England is also expected to cut rates by 50 to 75bp. The ECB and BoE last month each delivered 50bp cuts to 3.75% and 4.5%, respectively, in a coordinated move with other central banks, including the Federal Reserve.
Analysts pointed out that hefty rate cuts would not necessarily hurt the currencies but could instead spark a rally as central banks prove they are taking recession risks seriously. The same happened earlier this week when the Australian Dollar rallied after the Reserve Bank of Australia surprised markets with a bigger-than-expected rate cut.
Yesterday, EurUsd fell 0.53% to 1.2914 while GbpUsd dropped 0.58% to 1.5843. EurJpy was 2.08% lower at 126.85. GbpJpy was 2.13% lower at 155.61. UsdJpy dropped 1.57% to 98.22. UsdChf was 0.27% lower at 1.1602.
[B]Today’s Key Issues (time in GMT):[/B]
09:00 GBP October Halifax house prices -2.2% vs -1.3% (mom)
09:00 GBP October Halifax house prices 13.7% vs 12.4% (3m/y)
12:00 GBP BoE rate decision 3.75% vs 4.5%
12:45 EUR ECB rate decision 3.25% vs 3.75%
13:30 USD weekly Initial claims 480k vs 479k
13:30 USD Q3 Labor costs preliminary 2.8% vs -0.5%
13:30 USD Q3 Productivity preliminary 0.8% vs 4.3%
13:30 CAD September Building permits -1% vs -13.5%
15:00 CAD October Ivey PMI 50 vs 61
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Market dropped as low as 1.2330 last week and sharply rebounded to 1.3298 high Thursday last week. This shows actual trading range 1.2330 � 1.3298. On the downside, renewed weakness will open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low. On the upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3769 14th October high.
[B]GbpUsd:[/B] Market hit 1.5265 low on 24th October and then recovered up to 1.6673 high last week. This holds trading range 1.5265 � 1.6673. Strong support holds 1.5279 Monday 24th October low. Deep following supports are 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 last weeks high ahead of 1.7144 (38.2% retracement of 2.0158 � 1.5265 3-month drop). Further resistance holds 1.7744 (50% retracement).
[B]UsdJpy:[/B] Market has now recovered up to 99.80 September-October trendline resistance following two weeks ago drop to 90.91 on Friday 24th October. On the upside, only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 99.80 ahead of 100 pivot point. Staying in the current downtrend might open the way down to 79.70 April 1995 low.
[B]UsdChf:[/B] Market recovered Tuesday to 1.1802 high from Friday 1.1203 low. Further advance may open the way to 1.1895 October 2007 high and strong resistance. On the downside, renewed weakness below 1.1203 Friday low would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.
[B]Resistance and Support:[/B]
[B]
[/B]
By[B] Jean-Claude Braha [/B]- ACM Advanced Currency Markets, Geneva, Switzerland