The Dollar sank to a two-month low against a basket of currencies on Wednesday after the Federal Reserve cut benchmark interest rates by 0.50bp and warned more may be needed to support the faltering US economy. The move comes just eight days after the US central bank unexpectedly cut its lending rate by 0.75bp to boost an economy battered by a deep housing slump and a persistent credit crisis. Unlike the Fed, the ECB has held interest rates at 4% throughout a credit crisis that began in mid-2007, and policymakers have continued to focus on inflation risks.
News and Events:
The Dollar sank to a two-month low against a basket of currencies on Wednesday after the Federal Reserve cut benchmark interest rates by 0.50bp and warned more may be needed to support the faltering US economy. The move comes just eight days after the US central bank unexpectedly cut its lending rate by 0.75bp to boost an economy battered by a deep housing slump and a persistent credit crisis. The cumulative 1.25bp reduction in less than 10 days brings rates to 3%, a percentage point below euro-zone rates and among the lowest in the developed world.
The EurUsd surged to 1.4907, not far from its all-time high around 1.4967 before easing to 1.4828 +0.41%. GbpUsd higher by more than a cent and last traded down -0.27% at 1.9838. The UsdJpy fell 0.79% to 106.23 and UsdChf hit a record low of 1.0812, following US stocks lower after a CNBC reporter said he believed ratings agencies may downgrade bond insurers MBIA Inc. and Ambac Financial Group as early as today.
Traders said the market was watching to see whether the Euro could build on its momentum to rise above 1.5000, though some said it might take more tough talk from the European Central Bank on inflation before that happens. Unlike the Fed, the ECB has held interest rates at 4% throughout a credit crisis that began in mid-2007, and policymakers have continued to focus on inflation risks.
Today’s Key Issues (time in GMT):
07:00 GBP January nationwide House Price -0.4% vs -0.5% (MoM)
07:00 GBP January nationwide House Price 4.2% vs 4.8% (YoY)
09:00 EUR January Germany unemployment rate 8.3% vs 8.4%
10:00 EUR January Euro-zone Business Climate 0.86 vs 0.92
10:00 EUR January Euro-zone Consumer Sentiment -10 vs -9
10:00 EUR January Euro-zone Economic Sentiment 104 vs 104.7
10:00 EUR January Euro-zone Industrial Sentiment 1 vs 2
10:00 EUR January Euro-zone Services Sentiment 12 vs 14
10:00 EUR January Euro-zone CPI estimate 3.1% vs 3.1% (YoY)
10:00 EUR January Euro-zone Unemployment rate 7.1% vs 7.2%
10:30 GBP January GfK Consumer Confidence -15 vs -14
13:30 CAD November GDP 0.1 vs 0.2% (MoM)
13:30 USD December Personal Income 0.4% vs 0.4%
13:30 USD December Personal Spending 0.1% vs 1.1%
13:30 USD December PCE Price Index 3.5% vs 3.6% (YoY)
13:30 USD December PCE Core 0.2% vs 0.2% (MoM)
13:30 USD December PCE Core 2.2% vs 2.2% (YoY)
13:30 USD January 26th, Initial Jobless Claims 315k vs 301k
14:45 USD January Chicago Purchasing manager 52 vs 52
15:00 USD January New York NAPM Index 449.1
The Risk Today:
EurUsd Rebounded last week on 1.4366 low for a clear return over 1.4500 pivot point. Current trading range is set 1.4366 � 1.4922. Market traded as high as 1.4922 two weeks ago, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Last week 1.4366 low marks support. Lower than 1.4500 pivot level, market might look down for 1.4280 next support after trendline support holding 1.4311 December low.
GbpUsd might have exit the downtrend started mid-November. It broke up Trendline resistance 1.9793 last. Confirmation will only lock within a return 2.0000 key level before 2.0100 resistance. Meanwhile, renewed downtrend pressure below 1.9800 might open the door toward 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Initial supports hold 1.9483 11th January low and 1.9337 22nd January low.
UsdJpy remains weak having tested 104.97 low 23rd January. In recent downtrend, pressure opened the way toward 106 support. Initial support holds 104.97 ahead of 104.20 trendline support. Initial resistance holds 107.89 Friday high. Strong resistance holds 110.10 previous week double top ahead of 111.92 early January high.
UsdChf dropped yesterday down to 1.0812 new low. Further weakness will reopen the way down to 1.0759 trendline low. Initial resistance holds 1.1123 last week high. Market might look for 1.1130 (38.2% of 1.1603 � 1.0838 decline). Early January double top 1.1191 marks strong resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland