The Dollar fell on Monday to its lowest level in seven weeks against the Euro and Yen on fears that weak US corporate earnings will push the economy closer to recession, requiring the Federal Reserve to slash interest rates. Federal Reserve Chairman Ben Bernanke’s comments last week that the central bank stood ready to take “substantive additional action” to maintain growth cemented expectations for a 50bp cut in the Fed’s benchmark interest rate to 3.75%. Futures are also reflecting a 50/50 chance that the Fed could reduce its interest rate by 0.75bp between now and the central bank’s Jan. 29-30 policy meeting, giving a fresh reason for Forex dealers to sell Dollars. A 50bp cut would put the benchmark US rate below the key euro-zone interest rate for the first time in more than three years. Some of Wall Street’s largest banks will be reporting their earnings this week. In addition to 4Q corporate earnings, investors will be on the lookout for December US retail sales and Consumer Inflation data. Since consumer spending makes up around two-thirds of output, any weakness in Retail Sales or upward price pressures will be viewed as negative for growth and for the Dollar.
News and Events:
The Dollar fell on Monday to its lowest level in seven weeks against the Euro and Yen on fears that weak US corporate earnings will push the economy closer to recession, requiring the Federal Reserve to slash interest rates.
Some of Wall Street’s largest banks will be reporting their earnings this week, beginning with Citigroup on Tuesday, and currency dealers will be watching for indications of how much the credit crisis is damaging their bottom lines and increasing the risk of prolonged economic weakness. Federal Reserve Chairman Ben Bernanke’s comments last week that the central bank stood ready to take “substantive additional action” to maintain growth cemented expectations for a 50bp cut in the Fed’s benchmark interest rate to 3.75%. Futures are also reflecting a 50/50 chance that the Fed could reduce its interest rate by 0.75bp between now and the central bank’s Jan. 29-30 policy meeting, giving a fresh reason for Forex dealers to sell Dollars. A 50bp cut would put the benchmark US rate below the key euro-zone interest rate for the first time in more than three years. In contrast to the Fed, euro zone policy-makers have remained hawkish, stressing risks from inflation. Although analysts said a rare inter-meeting cut by the Fed is unlikely, expectations of such a move could get a boost if US banks announce big write-downs linked to the troubles in the sub-prime mortgage market and consequent global credit crunch. Citigroup is first in line this week among the banks to report 4Q earnings. The bank could write down as much as $24 billion and cut up to 24,000 jobs, analysts said on Monday.
EurUsd rose as high as 1.4915 breaching the 1.4900 level for the first time in seven weeks. It last traded at 1.4869, up 0.63%. UsdChf fell to a record low of 1.0886, before paring losses. It last traded at 1.0931 down 0.76%. UsdJpy dropped to a seven-week low of 107.37. It last traded at 108.30, down 0.51%. The Australian dollar, which has one of the highest interest rates among the 10 most traded developed currencies, was trading higher, supported by record-high Gold prices and strong domestic data. AudUsd rose to a two-month high of 0.9005, while NzdUsd went up to 0.7915. They respectively last traded at 0.8983 up 0.83% and 0.7886 up 0.78%. Sterling was unchanged at 1.9542.
In addition to corporate earnings, investors will be on the lookout for December US retail sales and Consumer Inflation data. Since consumer spending makes up around two-thirds of output, any weakness in Retail Sales or upward price pressures will be viewed as negative for growth and for the Dollar.
Today’s Key Issues (time in GMT):
09:30 GBP December CPI 0.5% vs 0.3% (MoM)
09:30 GBP December CPI 2.6% vs 2.4% (YoY)
09:30 GBP December Retail Price Index 0.6% vs 0.4% (MoM)
09:30 GBP December Retail Price Index 4% vs 4.3% (YoY)
10:00 EUR January Euro-zone ZEW Sentiment -40 vs -37.2
10:00 EUR January Germany ZEW Sentiment -38 vs -35.7
10:00 EUR January Germany Current Situation 59.5 vs 63.5
13:30 USD December Producer Price Index 0.2% vs 3.2% (MoM)
13:30 USD December Producer Price Index 7.1% vs 7.2% (YoY)
13:30 USD December PPI Core 0.2% vs 0.4% (MoM)
13:30 USD December PPI Core 2% vs 2% (YoY)
13:30 USD December Retail Sales 0% vs 1.2%
13:30 USD December Retail Sales ex-autos 0% vs 1.8%
13:30 USD January NY Fed Manufacturing 9.5 vs 10.31
15:00 USD November Business Inventories 0.4% vs 0.1%
22:00 USD January 13th, ABC Consumer Confidence -21 vs -20
23:50 JPY December Japan Corp goods price 0.1% vs 0.2% (MoM)
23:50 JPY December Japan Corp goods price 2.3% vs 2.3% (YoY)
23:50 JPY November Current Account NSA 6.5% vs 45.7%
The Risk Today:
EurUsd In recent positive trend, it yesterday broke up 1.4825 resistance (January range 1.4578-1.4825). Market traded as high as 1.4915, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Thursday 1.4640 low marks support. Below that, 1.4570 minor support holds the door before further drop to 1.4500 and 1.4280. Initial support holds 1.4783 yesterday low.
GbpUsd remains weak having broken 1.9590 support (38.2% retracement of 2 years 1.7049 � 2.1161 advance) and tested level below 1.9500. Further downtrend pressure might open the door toward 1.9105 (50% retracement). Longs will only lock within a return over 2.0000 key level and 2.0100 resistance. Initial support holds 1.9483 Friday low.
UsdJpy remains weak below 109.76 and might head towards 107.25 low of November 26, 2007. In recent downtrend, pressure opened the way to 107.50 key support. Strong resistance holds 110.10 last week double top ahead of 111.92 early January high. Initial support holds 107.22 November 26th low.
UsdChf Downtrend remains strong and tested last November 1.0888 key level. Further weakness will open the way down to 107.59 trendline low. Initial resistance holds 1.1012 yesterday high. Early January double top 1.1191 marks strong resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland