The Dollar dropped to a two-year low against the Euro on Tuesday after data showed Consumer Prices Index rose less than expected in March, renewing expectations the Federal Reserve may be more inclined to cut interest rates this year. The Dollar also fell against the Sterling, which rose above 2.0000 for the first time in almost 15 year as UK inflation date reinforced expectations the Bank of England will raise rates next month.
Philadelphia Federal Reserve Bank President Plosser comment on Tuesday did little to change the view the Fed may have to ease rate this year to boost a slowing economy. By contrast, the European Central Bank, which kept interest rates unchanged at 3.75%, has signaled it is likely to raise rates in June of beyond to stem higher inflation.
News and Events:
The Dollar dropped to a two-year low against the Euro on Tuesday after data showed Consumer Prices Index rose less than expected in March, renewing expectations the Federal Reserve may be more inclined to cut interest rates this year. The Dollar also fell against the Yen and the Sterling, which rose above 2.0000 for the first time in almost 15 year as UK inflation date reinforced expectations the Bank of England will raise rates next month. The UK Consumer Prices had accelerated at a 3.1% annual rate in March, the highest level since comparable records in 1997.
The US core CPI rose 0.1% m/m in March (consensus 0.2%).This was enough to push the y/y rate down from 2.7% to 2.5%, still too high for the Fed’s comfort but at least heading in the right direction. In contrast, the headline CPI jumped 0.6%, as expected, mainly due to higher gasoline prices. This pushed the y/y rate here up to 2.8% from 2.4%. This is still well below the peaks of 4% plus reached in 2005 and 2006, but is a reminder that energy price movements still represent a threat to inflation expectations and consumers’ real incomes.
Tough inflation talk from Philadelphia Federal Reserve Bank President Plosser on Tuesday did little to change the view the Fed may have to ease rate this year to boost a slowing economy. By contrast, the European Central Bank, although it kept benchmark interest rates unchanged at 3.75% last Thursday, has signaled it is likely to raise rates in June of beyond to stem higher inflation.
EurUsd was up 0.32% yesterday at 1.3573, after touching a two-year high 1.3595; getting closer to 1.3666 records high. UsdJpy fell -0.78% to 118.82 and EurJpy dipped -0.46% to 161.28. GbpUsd was up 0.91% to 2.0068 and hit its highest point since September 1992.
Today’s Key Issues:
GB 8:30 GMT: Bank of England Minutes for April 4-5 meeting
GB 8:30 GMT: March Claimant Count change -10k to +2.2k vs -3.8km, Unemployment 2.8% to 2.9% vs 2.9%
US 12:30 GMT: Fed’s Plosser speaks on the economic outlook in New Jersey
CAD 12:30 GMT: International Securities Transactions CAD-2.1B to CAD+3.5B vs CAD-3.7B
Euro 14:00 GMT: ECB’s Trichet holds speech in Boston
The Risk Today:
EurUsd has been consolidating recent gains, but overall, it keeps its overall uptrend intact. Last week’s move above the 1.3482 former resistance leaves this bullish pattern with little resistance till the 1.3666 all-time high from December 2004. Last Friday’s 1.3482 intraday low offers initial support. Recent advance had cleared 1.3554 and 1.3577 former resistances. Initial minor resistance is 1.3595.
GbpUsd has pushed above the 1.9917 (January 23 high) and 1.9946 (Elliott wave measured objective) resistance area, and most recently, the 2.0000 psychological round number. There’s little resistance now till the 2.0100 high from September 1992. Only a break of Monday’s 1.9854 low would put the bull trend on hold in the short term. Initial support is at the 1.9864 Friday’s high.
UsdJpy recent setback from Monday’s 119.88 high would have to break last Friday’s 118.22 low to put the underlying short-term bull trend on hold. The bull trend has little resistance above its 119.88 current extreme and the nearby 120 psychological round number till 120.54 (76.4% retracement of the 122.20-115.15 decline).
UsdChf recent weakness has little support below last Friday’s 1.2068 low till the 1.2030 mid-March low. Initial resistances are at last Friday high 1.2190 and last Wednesday’s 1.2247 peak, but only a move above previous week 1.2285 high would offset the current bearish tone. Initial resistance is at 1.2151 yesterday high.
<!-- 
→
Resistance and Support:
By Jean-Claude Braha, ACM Advanced Currency Markets, Geneva, Switzerland