The Dollar took another beating early this morning, dropping to record lows against the Euro, the Swiss franc and a basket of currencies because of a growing view that the US Federal Reserve will cut interest rates again next month. Forex traders said low liquidity in the holiday-thinned market exaggerated currency moves and prices could remain volatile for the rest of the day. US markets were closed on Thursday for Thanksgiving and Japan’s markets are closed on Friday for a national holiday. Economic Co-operation and Development (OECD), which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could feasibly hit $300 billion. European Central Bank President Jean-Claude Trichet said on Thursday he was against abrupt and “brutal” swings in exchange rates, but investors still pushed the euro well above 1.4900 to put a test of the psychologically important 1.5000 level in sight.
News and Events:
The Dollar took another beating early this morning, dropping to record lows against the Euro, the Swiss franc and a basket of currencies because of a growing view that the US Federal Reserve will cut interest rates again next month. Forex traders said low liquidity in the holiday-thinned market exaggerated currency moves and prices could remain volatile for the rest of the day. US markets were closed on Thursday for Thanksgiving and Japan’s markets are closed on Friday for a national holiday. UsdJpy hit a 2-1/2-year peak down to 107.54 as investors, worried about the fallout from credit market problems and the impact on the broader economy, remained averse to risk, even though stock markets stabilized after several days of falls. The EurUsd was trading up to 1.4967 intraday and record high. FX dealers said earlier the Dollar’s move lower was mostly technically driven as stop-loss orders to Sell it were triggered one after another. UsdChf was down to 1.0888 record low. UsdJpy went down to 107.54 the lowest since June 2005. The Yen is being supported by a reversal of carry trades, in which investors had borrowed the Yen to fund the purchase of higher-yielding assets. To reduce their risk exposure, they are selling the higher-yielding assets and buying back the Yen. The impact of the housing downturn in the United States has raised expectations that the Federal Reserve could follow up two cuts in its fed funds rate with another one in December, and that is undermining the Dollar. Worries about the fallout have been stoked by the Organization for Economic Co-operation and Development (OECD), which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could feasibly hit $300 billion. Analyst said “that has been the key driver of the Dollar’s move today. We are seeing another round of risk aversion and worries that we could see more financial institutions in the US coming under stress”. European Central Bank President Jean-Claude Trichet said on Thursday he was against abrupt and “brutal” swings in exchange rates, but investors still pushed the euro well above 1.4900 to put a test of the psychologically important 1.5000 level in sight.
Today’s Key Issues (time in GMT):
00:00 EUR Japan Labour Thanksgiving holiday
09:00 EUR November Euro zone PMI Manufacturing 51 vs 51.5
09:00 EUR November Euro zone PMI Composite 54.1 vs 54.7
09:00 NOK November Euro zone PMI Services 55.2 vs 55.8
09:00 GBP September Labour force survey 2.4% vs 2.5%
09:30 GBP Q3 GDP 2nd release 0.8% vs 0.8% (QoQ)
09:30 CAD Q3 GDP 2nd release 3.3% vs 3.3% (YoY)
16:00 September Budget Balance previously Cad$ 0.911B
The Risk Today:
EurUsd Euro remains in a positive trend. It set new record high this morning at 1.4967. Last week, it found support on 1.4520 and consolidated around 1.4800 (initial support). On the downside, only a return below 1.4500 and further drop to 1.4280 former resistance would threaten the uptrend. This could open the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial support holds 1.4800.
GbpUsd Following early November largest drop since October 22nd, Cable found support last week around 2.0400. On the upside, 2.1161 high (Friday 9th) marks the strong resistance before putting 2.1355 May 11th 1981 into focus. Cable posted an intraday 2.0764 high early this morning. Initial resistance holds 2.0844 Nov 14th high. On the downside, a strong return below 2.0525 may open a market reversal. But it would need renewed pressure below 2.0200 and further weakness toward 2.0000 psychological levels to validate a downtrend. Initial support holds 2.0525.
UsdJpy Trend remains bearish. UsdJpy mostly drop this week posting new lows. It hit yesterday 107.54 2 �-year low. On the downtrend, supports hold 106.50 June 2005 low and 101.68 January 2005 low. On the upside, market needs a return over 109 and 114 to undermine the actual downtrend. This may open the way toward 117.63 resistance. Initial resistance holds 109.13 former support.
UsdChf Downtrend remains heavy. It posted an extreme low 1.0888 this morning, following recent break toward the 12-year low 1.1110 from April 1995. Market will again found support on 1.1000 key level. Initial resistance holds 1.1300 (12th Nov) high. It would also need a return over 1.1500 and 1.1640 level to relieve actual bear threat.
Resistance and Support:
ByJean-Claude Braha- ACM Advanced Currency Markets, Geneva, Switzerland