The Dollar edged lower against the Euro on Monday , ahead of US inflation data and a series of speeches from Federal Reserve officials that could yield clues on whether a cut in US interest rates is likely this year. The Euro was higher across the board, tracking a rise in Euro-zone Bond yields, which hit multiyear highs on a view that the European Central Bank will raise rates at least once more this year.
Naming inflation as the main risk to the US economy suggests the Fed is more likely to keep its key interest rate at current 5.25%, to fight inflation before its cuts rates to spark economic growth.
An unexpectedly strong report on New Zealand Retail Sales (1Q) renewed talk that the country’s central bank may have to further raise interest rates to cool the economy.
News and Events:
The Dollar edged lower against the Euro on Monday , ahead of US inflation data and a series of speeches from Federal Reserve officials that could give clues on whether a cut in US interest rates is likely this year. The Euro was higher across the board, tracking a rise in Euro-zone Bond yields, which hit multiyear highs on a view that the European Central Bank will raise rates at least once more this year.
Most investors are still betting that the Federal Reserve will cut interest rates later this year to shore up a slowing economy. Early this year, high readings of inflation have complicated the picture, and suggested to some that the Fed will hold rates steady for longer than previously thought. Naming inflation as the main risk to the US economy suggests the Fed is more likely to keep its key interest rate at current 5.25%, to fight inflation before its cuts rates to spark economic growth. Analysts said that rising inflation and accompanying higher interest rages tend to increase a currency’s value because it boost the rate of return of investments based in that currency.
EurUsd was up 0.14% at 1.3543 and EurJpy was up 0.29% at 162.86, within sight of another record high set this month. UsdJpy was up 0.22% to 120.46, just under last week two-month high 120.54
Markets players will also be looking at speech from Fed Chairman Ben Bernanke later this week.
An unexpectedly strong report on New Zealand retail sales in the first quarter renewed talk that the country’s central bank may have to further raise interest rates (already the highest in the industrialized world) to cool the economy. NzdUsd rose 0.46% to 0.7374 after hitting 0.7402 intraday high and getting closer to a 22-year high 0.7494 from last month.
Today’s Key Issues (time in GMT):
08.30 GB April Consumer Price Index 0.3% vs 0.5% (MoM)
08.30 GB April Consumer Price Index 2.8% vs % 3.1% (YoY)
08.30 GB April Retail Price Index 0.5% vs 0.6% (MoM)
08.30 GB April Retail Price Index 4.5% vs 4.8% (YoY)
09.00 Euro 1Q Euro-zone GDP 0.5% vs 0.9% (QoQ)
09.00 Euro 1Q Euro-zone GDP 3.0% vs 3.3% (YoY)
09.20 ECB’s Tumpel-Gugerell speaks in Frankfurt
10.10 ECB’s Mersch speaks at Forum in Dubai
12.10 Bernanke speaks at Atlanta Fed Financial Markets Conference
12.30 US April Consumer Price Index 0.5% vs 0.6% (MoM)
12.30 US April CPI ex-Food & Energy 0.2% vs 0.1% (MoM)
12.30 US April Consumer Price Index 2.6% vs 2.8% (YoY)
12.30 US April CPI ex-Food & Energy 2.4% vs 2.5% (YoY)
12.30 US May Empire Manufacturing Survey 8 vs 3.8
13.00 US March Net Long-term TIC Flows $10B to 85B vs $58B
17.00 US May NAHB Housing Market Index 31 to 35 vs 33
17.30 ECB’s Gonzales-Paramo speaks in The Hague
22.45 NZD 1Q PPI Input Price 0.5% vs -0.3% (QoQ)
22.45 NZD 1Q PPI Output Price 0.4% vs -0.5% (QoQ)
23.15 US Fed’s Geithner speaks at Atlanta Fed Conf on Derivatives
The Risk Today:
EurUsd has recovered from last Thursday’s 1.3463 low and is approaching 1.3565 resistance. A recovery beyond 1.3565 is needed to put the relapse from 1.3681 on hold, with a move above last week’s 1.3628 high is necessary to reinstate a bullish tone. This would open the way toward 1.3750 trendline resistance.
GbpUsd has violated support at 1.9771 (38.2% retracement of the 1.9184-2.0134 advance). This exposes support at 1.9659 (50% retracement of the 1.9184 to 2.0134 advance). Minor initial resistance cuts in at Monday’s 1.9847 high, but only a move above last week’s 2.0000 high would reverse the immediate heavy tone originating from the 2.0133 peak.
UsdJpy has established a trading range over the past two weeks from support at 118.90 to resistance at 120.54. Only a breakout from this range would likely establish direction.
UsdChf has staged a notable recovery from last Monday’s 1.2083 low, violating May 2 high at 1.2191. But so far, it has not been able to make much progress beyond this former barrier, still holding below the next important resistance at the 1.2285 April 9 high. Initial support is around last Wednesday’s 1.2142 low.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland