The Dollar sank to record lows against the Euro and a basket of major currencies on Tuesday as bleak warnings of more pain in the credit sphere reinforced views of a Federal Reserve rate cut in December. A cut in US interest rates is negative for the Dollar, weakening its appeal versus higher-yielding currencies.
Analysts are waiting to see if European Central Bank President Jean-Claude Trichet, in remarks expected on Thursday, would hint at a rate rise next month for the euro zone. Analyst cited flow data showing an extended outflow of investments from the United States to European equities and emerging market central banks diversifying their foreign exchange reserves from dollars to euros.
Canadian dollar surge is “outside normal bounds,” and sustained strength would pose risks to the Canadian economy.
Expectations of an Australia rate hike Wednesday to an 11-year peak of 6.75%, and higher Gold prices at 28-year high 845.40 help Australian Dollar surged against US Dollar.
News and Events:
The Dollar sank to record lows against the Euro and a basket of major currencies on Tuesday as bleak warnings of more pain in the credit sphere reinforced views of a Federal Reserve rate cut in December. A cut in US interest rates is negative for the Dollar, weakening its appeal versus higher-yielding currencies.
Analysts are waiting to see if European Central Bank President Jean-Claude Trichet, in remarks expected on Thursday, would hint at a rate rise next month for the euro zone. Analyst cited flow data showing an extended outflow of investments from the United States to European equities and emerging market central banks diversifying their foreign exchange reserves from dollars to euros.
The drumbeat of bad news for banks kept the market on edge, already uneasy over Citibank’s Sunday forecast of up to $11 billion in mortgage-related losses. On Tuesday, major US home lender IndyMac Bancorp Inc posted a net quarterly loss of $202.7 million. Germany’s Commerzbank said it was writing off 291 million Euros of assets exposed to risky US mortgages. Bank of England Governor Mervyn King said it would take months for banks to reveal their full losses stemming from risky mortgages and former Federal Reserve chief Alan Greenspan said the housing debacle was a major risk to the US economy.
Federal funds futures pricing on Tuesday implied a 64% probability of a December rate cut, having ranged from 46% to over 90% since Oct. 18.
The Canadian Dollar raced higher, supported by rallying prices of Oil and Metals, trading -1.53% yesterday and 1.33% today down to 0.9066.
Bank of Canada Senior Deputy Governor Paul Jenkins said the recent Canadian dollar surge is “outside normal bounds,” and sustained strength would pose risks to the Canadian economy.
NzdUsd gained 1.56% to 0.7825. The AudUsd rose 1.23% to 0.9319, helped by expectations of a benchmark rate hike Wednesday to an 11-year peak of 6.75%, which could make local assets more attractive to foreign investors. Australia is a major metals exporter, and the Aussie was also helped by surging world metals prices. Gold prices hit a 28-year high 845.40.
Today’s Key Issues (time in GMT):
11:00 US Nov 2nd MBA Mortgage Applications 3.8%
12:30 US 3Q Nonfarm Productivity 3% vs 2.6%
12:30 US 3Q Unit labor Costs 1.1% vs 1.4%
12:30 US Sept Wholesale inventories 0.2% vs 0.1%
19:00 USD Sept Consumer Credit $8.3B vs $12.2B
20:45 NZD 3Q Employment Growth 0.4% vs 0.7%
20:45 NZD 3Q Unemployment rate 3.6% vs 3.6%
The Risk Today:
EurUsd remains strong and broke all resistances on the upside. Nest Trendline resistance holds 1.4730. On the downside, 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 trend broke toward 2.1000 and a channel top at 2.1030. On the downside, it would need renewed pressure below 2.1000 and further weakness toward 2.0500 psychological level to confirm trend change. Initial support holds 2.10 former resistance.
UsdJpy Trend remains bearish. Recent drop below 114.81 had pushed toward 113.26 and will target 112.61 and for a possible retest of ultimate 111.60 (August 17 low). On the upside, it still need a confirmation over 117.63 resistance to open the way for further extend toward 119.06 (61.8% retracement of 123.67 to 111.60 decline).
UsdChf broke 1.1500 pivot point. Trend remains bearish pointing lower to 1.1288 Dec 2004 low. Market will look at 1.1110 April 1995 low. Initial resistance holds 1.1500 Pivot point. It would need a return over 1.1640 to relieve the immediate bear threat.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland