The Dollar dropped on Friday to 3-month lows on concerns the growing crisis in the US sub-prime mortgage industry could spread and hit economic growth. Former Federal Reserve Chairman Alan Greenspan said that overall the fate of the Dollar depends on developments in the sub-prime sector and Housing market.
With last week’s dose of economic data out the way, the market would focus on the Federal Reserve policy meeting this Wednesday. By anticipation, the futures market has already fully priced two times 0.25% interest rate cuts by the end of the year.
News and Events:
The Dollar dropped on Friday to 3-month lows on concerns the growing crisis in the US sub-prime mortgage industry could spread and hit economic growth. Investors are worried that weakness in parts of the housing sector could seep into other markets and the broader economy, particularly after former Federal Reserve Chairman Alan Greenspan warned of such a risk last Thursday. He added that overall the fate of the Dollar depends on developments in the sub-prime sector and Housing market. On Friday, the Dollar’s sell-off shortly before the start of New York session was strong enough to push it below key technical levels, specifically against the Euro.
Dealers said that with Friday’s dose of economic data out the way, the market would shift its focus to a Federal Reserve policy meeting this Wednesday. While US economic data has been mixed lately, the housing sector continues to be a difficult factor for investors. The futures market has already fully priced in two quarter-percentage point interest rate cuts by the end of the year.
The Consumer Price Index increase by 0.4% (MoM) in February, this was marginally above consensus at 0.3%, although the markets may have been braced for an even bigger increase following previous day above-consensus PPI numbers. Energy prices increased by 0.9%; led by a 1.5% increase in gas & electricity prices and a fairly modest 0.3% increase in gasoline. Food prices increased by 0.8%, led by a 4.7% jump in fresh food prices. Analysts said it is the recent frost damage to crops in the south, which wiped out 80% of California’s fruit crop, is behind the temporary spike in fresh food prices. US Michigan Consumer Confidence fell to 88.8 in March, from 91.3, its lowest level since last September.
Today’s Key Issues:
CHF 8:15 GMT: 4Q Industrial Production 4.7% vs 8.2% (QoQ) and 4.7% vs 8.2% (YoY)
CAD 12:30 GMT: January International Securities Transactions CAD 1.30B vs -3.26B
CAD 12:30 GMT: January Wholesale Sales -0.9% vs 2.7% (MoM)
US 17:00 GMT: March NAHB Housing Market Index 38 vs 40
CAD 20:00 GMT: Canada Government releases 2007 Budget
The Risk Today:
EurUsd pushed above the 1.3260 late February high and the 1.3298 early January high, leaving the bull trend from 1.2865 with little resistance till the broader trendline resistance at 1.3366 set back in early December. The bullish tone from 1.2865 looks still strong. Intraday support is around 1.3260. Initial support is former trendline resistance 1.3290, then 1.3260. A break there would open the risk down toward 1.3180.
GbpUsd has pushed through Monday’s 1.9435 high and 1.9487 and may retest those Fibonacci resistances. This would clear the way for a run toward 1.9500 trendline resistance. On the down trend, 1.9390 marks initial support. The risk remains for further weakness with the next bear trigger at 1.9188. Then, focus will be on the 1.9146 Pivot support from last November.
UsdJpy continues its choppy consolidation phase, but as long as the 118.50 to 118.88 range resistance holds, we will keep our focus on the downside. A break of 115.76 and the 115.55 would clear the way for a run at the 115.15 trend low from early March.
UsdChf is likely to remain under pressure after the break of former support at 1.2146 (61.8% retracement of 1.1881 � 1.2575 advance) and Wednesday’s 1.2104 low which exposes the 1.1981 December 12 low. There’s little support below there till the 1.1881 early December low. Next strong support is 1.1984.
Resistance and Support: