The Dollar tumbled to a record low against the Euro on Wednesday after comments by a Chinese official stoked fears the Central Bank of the world’s fourth-largest economy would reduce its holdings of US assets.
The Dollar’s decline was broad in Forex market.
General Motors Corp biggest quarterly loss ever and warnings of potential credit-related write-downs from major financial institutions, kept alive expectations that the Federal Reserve could cut interest rates again next month.
ECB is widely expected to hold its benchmark interest rate at 4%. Forex investors will closely look at any hawkish signal from Trichet, which may renew rally of the Euro.
Bank of England monetary policy committee meeting is expected to keep interest rates at 5.75% six-year high.
News and Events:
The Dollar tumbled to a record low against the Euro on Wednesday after comments by a Chinese official stoked fears the Central Bank of the world’s fourth-largest economy would reduce its holdings of US assets.
The Dollar’s decline was broad in Forex market. It tumbled to record lows against a basket of major currencies as sentiment darkened further after General Motors Corp posted its biggest quarterly loss ever. That loss, coupled with warnings of potential credit-related write-downs from major financial institutions, kept alive expectations that the Federal Reserve could cut interest rates again next month.
The Dollar also sank against the Swiss franc and the Yen as the US stock market dived almost 3%. That unnerved “carry trade” currency investors, moving them to repay low-interest loans in Swiss francs and yen used to make high-stakes foreign exchange bets. The Euro raced to an all-time high of 1.4729 before retreating to 1.4621, still up 0.41% against the Dollar on the day. UsdJpy fell 1.82% to 112.63. UsdChf fell 0.87% to 1.1342, recovering from intraday 1.1358 low.
The next big Euro move could hinge on European Central Bank President Jean-Claude Trichet’s news conference on Thursday following the bank’s monetary policy meeting, at which the ECB is widely expected to hold its benchmark interest rate at 4%. Forex investors will closely look at any hawkish signal from Trichet, which may renew rally of the Euro.
The Euro jumped to its peak early on Wednesday soon after a Chinese central banker said the dollar was losing its major global currency status and a top lawmaker said China should balance the make-up of its $1.43 trillion foreign reserves to take advantage of appreciating currencies. Another major gainer was the British pound ahead of today’s Bank of England monetary policy committee meeting, which is expected to keep interest rates at a six-year high. GbpUsd jumped to a 26-year high of 2.1071. It last traded at 2.1867 up 0.59%.
The divergent paths of interest rate policy in the United States and Europe are the prime drivers of Dollar weakness. Since September, the Fed has cut benchmark rates by three-quarters of a percentage point to 4.5%, while the ECB and BoE have held rates steady after hiking them earlier in the year. Higher interest rates are a magnet for inflows to higher-yielding deposits, favoring high-rate currencies.
Today’s Key Issues (time in GMT):
11:00 EUR Bank of England rate decision 5.75% vs 5.75%
11:45 EUR ECB rate decision 4% vs 4%
12:15 CAD House Starts 228k vs 278.2k
12:30 USD Nov 3rd Initial claims 330k vs 327k
12:30 CAD Sept new Housing Price Index 0.5% vs 0.4% (MoM)
The Risk Today:
EurUsd remains firm and hit yesterday 1.4729 high. This is the Trendline resistance at 1.4730. On the downside, profit taking down to 1.4500 and a return below 1.4280 former resistance may threaten the trend and reopen the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial support holds 1.4500 former key level.
GbpUsd Cable recent positive hit yesterday 26-year high 2.1071. Initial resistance holds channel top at 2.1030. On the downside, it would need renewed pressure below 2.1000 and further weakness toward 2.0500 psychological levels to confirm a trend change. Initial support holds 2.10 former resistance.
UsdJpy Trend remains bearish. Yesterday drop below 114 had pushed toward 112.10 low and will have ultimate 111.60 (August 17 low) into focus. On the upside, market needs a return over 114 and 116 to undermine the actual downtrend. This may open the way toward 117.63 resistance and further advance to 119.06 (61.8% retracement of 123.67 to 111.60 decline).
UsdChf broke 1.1500 pivot point and hit yesterday 1.1258, beating 1.1288 Dec 2004 low. Market will look at 1.1110 April 1995 low. Extreme target holds 1.1000 key level. Initial resistance holds 1.1500 Pivot point. It would need a return over that point and 1.1640 level to relieve actual bear threat.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland