The Dollar fell against the Euro and Yen on Tuesday after Federal Reserve Chairman Ben Bernanke said the ailing US housing sector may remain a drag on economic growth. Bernanke warned that problems in the housing market may drag on US growth for �somewhat longer� than expected.
Wall Street firms have been changing their calls on the Fed’s next move. Goldman Sachs said Tuesday it now expects the Fed to hold rates at 5.25% this year and nest, reversing an earlier call of 75bp cuts in 2007. Merrill Lynch and UBS also reversed calls for a Fed cut this Year.
The European Central Bank is expected to lift interest rates to 4% at a meeting on Wednesday, and some are betting on official’s signals for a future increase.
News and Events:
The Dollar fell against the Euro and Yen on Tuesday after Federal Reserve Chairman Ben Bernanke said the ailing US housing sector may remain a drag on economic growth. A report showing US services sector growth hit its highest level in more than a year helped the Dollar recover somewhat by suggesting there’s still very good in the economy to justify lower interest rates. But Bernanke’s warning on Housing as well as market expectations of higher Euro-zone interest rate and swifter growth in other major economies kept investors gravitating away from the Dollar. In remarks prepared for the conference in Cape Town Bernanke warned that problems in the housing market may drag on US growth for �somewhat longer� than expected. Wall Street firms have been changing their calls on the Fed’s next move. Goldman Sachs said Tuesday it now expects the Fed to hold rates at 5.25% this year and nest, reversing an earlier call of 75bp cuts in 2007. Merrill Lynch and UBS also reversed calls for a Fed cut this Year.
The European Central Bank is expected to lift interest rates to 4% at a meeting on Wednesday, and some are betting on official’s signals for a future increase.
Expectations for future rate hikes also boosted demand for the already high-yielding Australian Dollar, which hit a 17-year high against the US currency. The New Zealand Dollar rose to its highest level against the Dollar since it was floated in 1985. The Reserve Bank of Australia will make a rate decision on Wednesday and the Bank of England and the Reserve Bank of New Zealand will issue policy statements on Thursday. All are seen holding rates steady, but market expects they will maintain possibilities for future hikes.
Today’s Key Issues (time in GMT):
09.30 GB May BRC Shop Price Index previously 0% (MoM) and 0.8% (YoY)
10.00 EUR April German Factory Orders -1.0% vs 2.4% (MoM)
10.00 EUR April German Factory Orders 10.1% vs 9.9% (YoY)
11.45 EUR European Central Bank rate decision 4% vs 3.75%
12.30 EUR ECB’s Trichet speaks at ECB monthly news conference
12.30 CAD April Building Permits -5.0% vs 27.4% (MoM)
13.50 US Fed’s Lacker speaks on Economy in Frederick, Maryland
14.00 CAD May Ivey Purchasing Managers Index 64 vs 60.9
16.30 EUR ECB’s Weber speaks in Frankfurt
18.45 US Fed’s Hoenig speaks on Policy, Economy in Cody, Wyoming
21.00 NZD Reserve Bank of New Zealand Cash Rate 7.75%
The Risk Today:
EurUsd market continues to favor further downside in EURUSD. A break of last Friday’s 1.3393 new trend low would open the door for a run at 1.3370 (38.2% retracement of 1.2865-1.3683). Minor resistance hold 1.3521 level, last week’s high.
GbpUsd cleared resistance at 1.9900, last week’s high and a sustained move above this level would open the way toward 2.0000 key level. Only a move below the 1.9734 would open the door toward the 1.9677 trend low and resume bear trend towards 1.9659 (50% retracement of the 1.9184 to 2.0134 advance). Initial support is yesterday 1.9814 low.
UsdJpy bull trend remains intact with the focus on the January-February 122.10 to 122.22 highs. Not far off is 122.38 (61.8% of 135.18-101.65 big 5 years decline). Last Friday 122.14 high would mark minor resistance. Support lies at 120.86, May 25th low.
UsdChf recent corrective pullback bottomed last Tuesday at 1.2200, with the recovery from there likely to push to a new trend high above 1.2332 and test resistance at 1.2356 (61.8% retracement of the 1.2575-1.1994 decline). A break of 1.2200 would open the way toward 1.2125.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland