The Dollar rose on Wednesday as German industrial output, exports and retail sales all fell in November, heightening concerns about the outlook for growth in Europe’s largest economy. The dollar’s gains on Wednesday came even as Federal funds futures were pricing in a roughly 80% chance of a 50bp reduction in the Fed’s benchmark overnight lending rate to 3.75% at month end, while a 25bp cut has been fully factored in. BoE and ECB will hold respective monetary policy meeting today and are widely expected to hold interest rates steady respectively at 5.5% and 4%. Markets will closely watch comments from ECB President Jean-Claude Trichet, given a spate of weak economic euro zone numbers.
News and Events:
The Dollar rose on Wednesday as investors started to focus on a potential growth slowdown in the euro zone after gloomy German industrial output and retail data. A slower pace of expansion in the common monetary area would force the European Central Bank to abandon its hawkish inflation rhetoric, putting pressure on Euro, analysts said. German industrial output, exports and retail sales all fell in November, heightening concerns about the outlook for growth in Europe’s largest economy.
Yesterday, EurUsd was down 0.31% percent at 1.4663, after dipping to a session low of 1.4639. A late rally in the US stock market, as investors picked up beaten down shares, pushed the Dollar to an intraday peak of 110.12 against Yen. UsdJpy was last trading at 109.89, up 0.84%. Analysts said “People are playing the Yen against the stock market”. The dollar’s gains on Wednesday came even as Federal funds futures were pricing in a roughly 80% chance of a 50bp reduction in the Fed’s benchmark overnight lending rate to 3.75% at month end, while a 25bp cut has been fully factored in. "The sentiment seems to be that aggressively cutting interest rates now is necessary, and the sooner the cuts, the sooner the U.S. economy will be on the road to recovery, said analyst. However, investors remained cautious ahead of Thursday’s speech on the US economy by Federal Reserve Chairman Ben Bernanke, keeping the price action confined to tight ranges. Meanwhile, Sterling hit a record low against the Euro and a nine-month trough against the Dollar as renewed fears about the British retail sector stoked expectations of a UK interest rate cut. EurGbp rose 0.43% to 0.7491, having reached a record post-1999 launch peak of 0.7504. GbpUsd fell 0.73% to 1.9573, trading as low as 1.9554, the lowest level since late March. The pound was knocked after Britain’s largest clothing retailer, Marks & Spencer, reported unexpectedly weak fourth-quarter sales.
BoE and ECB will hold respective monetary policy meeting today and are widely expected to hold interest rates steady respectively at 5.5% and 4%. Markets will closely watch comments from ECB President Jean-Claude Trichet, given a spate of weak economic euro zone numbers.
Today’s Key Issues (time in GMT):
09:00 NOK December Consumer Price Index 2.4% vs 1.5%
09:00 NOK December Core Inflation 1.6% vs 1.5%
09:30 GBP November Trade Balance �-7.23B vs �-7.12B
12:00 GBP January BoE rate decision 5.5% vs 5.5%
12:45 EUR January ECB rate decision 4% vs 4%
13:30 CAD November New Housing Price Index 0.3% vs 0.1% (MoM)
13:30 USD January Initial Jobless Claims 340k vs 336k
15:00 USD November Wholesale Inventories 0.4% vs 0%
The Risk Today:
EurUsd is narrowing in 1.4575 � 1.4825 January range. Support at 1.4570 holds the door before further drop to 1.4500 and 1.4280. Initial resistance holds 1.4825 early January high ahead of 1.4967 resistance November high
GbpUsd 1.9700 key support has been broken in further downtrend pressure. This might open the door toward 1.9590 (38.2% retracement of 2 years 1.7049 � 2.1161 advance) and 1.9105 (50% retracement). Longs will only lock within a return over 2.0100. Minor support holds 1.9554 yesterday low.
UsdJpy remains weak below 109.76 and might head towards 107.25 low of November 26, 2007. As the pair trades below 109.76, the target is well in sight. Strong resistance holds 111.92 early January high. Initial support holds 107.91 Monday low.
UsdChf need a return over 1.1160 to clear the last two weeks downtrend. Initial resistance holds 1.1202. The pair eyes a move down to a downward target of 1.0950 and a possible spike to 1.0889. The pair holds very heavy under 1.1372. Initial support holds 1.1019 Friday low.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland