The Dollar resumed its slide and fell to record lows against the Euro on Wednesday amid growing pessimism over the US economy. Demand for the currency fell further after data showed the country’s service sector contracted for a second straight month in February. Yesterday, US Treasury Secretary Henry Paulson told policy-makers that while the economy would likely continue to grow, risks were to the downside, adding to mounting fears of an economic recession. Bank of England and European Central Bank policy meetings are due today.
News and Events:
The Dollar resumed its slide and fell to record lows against the Euro on Wednesday amid growing pessimism over the US economy. Demand for the currency fell further after data showed the country’s service sector contracted for a second straight month in February. Also on Wednesday, US Treasury Secretary Henry Paulson told policy-makers that while the economy would likely continue to grow, risks were to the downside, adding to mounting fears of an economic recession.
EurUsd jumped to a historic peak of 1.5302 yesterday. It was last trading at 1.5278, up 0.47%. UsdJpy climbed yesterday to session peaks of 104.18 as US stocks rebounded from Tuesday’s losses. It was last trading up 0.51% at 103.93.
News that the US services sector contracted at a slower pace in February boosted investors’ appetite for risky assets such as stocks and high-yielding currencies at the expense of the low-yielding Japanese yen and Swiss currency. The Institute for Supply Management said its non-manufacturing index climbed to 49.3 in February, beating market expectations for a reading of 47 and above January’s print of 44.6. A reading below 50 means a contraction. Investors showed little restraint against driving the Dollar too low against the euro before today Bank of England and European Central Bank policy meetings. Analysts expect the ECB to maintain its hawkish inflation rhetoric despite complaints this week by euro-zone finance minister that the Euro is overvalued against some currencies.
Elsewhere, the New Zealand dollar erased losses against the dollar after the country’s central bank flagged inflation pressures from food, oil and wages. The Reserve Bank of New Zealand left its benchmark lending rate unchanged at 8.25% as expected. NzdUsd last traded up 0.43% at 0.8030 from 0.7924 low before the rate decision.
Today’s Key Issues (time in GMT):
06:45 CHF February Unemployment Rate 2.5% vs 2.6%
08:30 DKK January Industrial Production previously -3.7%
12:00 GBP Bank of England interest rate decision 5.25% vs 5.25%
12:45 EUR ECB interest rate decision 4% vs 4%
13:00 USD Fed�s Rosengren talks at a meeting, Massachusetts
13:30 USD weekly jobless claims 360k vs 373k
13:30 CAD January Building permits 1% vs 0.4%
15:00 USD January Pending home sales -1% vs -1.5%
18:00 USD Fed�s Geithner speaks about financial challenges, New York
01:00 USD Fed�s Poole speaks on finance at University of Illinois
The Risk Today:
EurUsd Euro posted a new all-time high 1.5302 yesterday. Medium term trading range is still 1.4500 � 1.5302. Initial support hold 1.5144 Friday low. Psychological 1.5000 level marks strong support before 1.4500 pivot point. Initial resistance hold 1.5302 yesterday high.
GbpUsd Cable advanced up to 1.9972 last Wednesday and consolidated in 1.9762 � 1.9972 range. Further uptrend would be confirmed over 2.0000 key level and 2.0100 resistance. Renewed pressure below 1.9500 might reopen the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Further support holds 1.9630 former Trendline resistance.
UsdJpy It remains weak after last week 5$ drop. On the downside, further weakness might open the door down to 101.68 January 2005 low and 101.22 November 1999 low. On the Upside, only a return over 108 may open the way up to 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Initial support holds 102.61 Monday low.
UsdChf Market remains weak. It hit Monday 1.0309 low. Further weakness might open the way down to 1.0000 psychological level. Uptrend would return over 1.0700 and open the way for 1.1130 (38.2% of 1.1603 � 1.0838 decline). Early January double top 1.1191 marks strong resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland