Dollar rose after better US employment report and large fall in German Ifo Index

The Dollar rose across the board on Thursday after US government data showed resilience in the labor market, while a key measure of business sentiment in Germany plunged undermining the Euro. The Euro’s fall followed an early week rally to a record 1.6019 on Tuesday, the highest level since the Euro�s inception in 1999, as investors bet the ECB would raise interest rates to restrain inflation. The headline Ifo index fell to a much lower-than-expected 102.4 in April, its lowest since January 2006. The Ifo, coupled with a slump in the euro zone manufacturing PMI to levels nearly implying an economic-contraction on Wednesday, suggested that the euro zone may not be immune to a US economic slowdown. ECB President Jean-Claude Trichet said on Thursday that there is concern about the impact of currency fluctuations on financial stability. The Dollar’s gains come as investors look closely at whether the Federal Reserve might be ready to pause in its aggressive run of interest rate cuts after an expected 25bp cut in the fed funds rate next week to 2%.

News and Events:

The Dollar rose across the board on Thursday after US government data showed resilience in the labor market, while a key measure of business sentiment in Germany plunged undermining the Euro. The Euro’s fall followed an early week rally to a record 1.6019 on Tuesday, the highest level since the Euro�s inception in 1999, as investors bet the ECB would raise interest rates to restrain inflation. But ECB policy-makers’ comments on excess volatility in Euro trading combined with weak economic growth data this week, triggered a Sell Off in the currency, analysts said.

In Germany, yesterday reading on business sentiment showed the biggest monthly fall since September 2001. The headline Ifo index fell to a much lower-than-expected 102.4 in April, its lowest since January 2006. The Ifo, coupled with a slump in the euro zone manufacturing PMI to levels nearly implying an economic-contraction on Wednesday, suggested that the euro zone may not be immune to a US economic slowdown.

EurUsd was down 1.3% at 1.5676, more than 3 cents below Tuesday’s record high and its lowest in at least two weeks. EurJpy was also down 0.46% at 163.58, while UsdJpy was up 0.85% at 104.36. UsdChf rose 1.96% to 1.0356.

ECB President Jean-Claude Trichet said on Thursday that there is concern about the impact of currency fluctuations on financial stability. “If anyone was (betting) on a rate hike sometime this year from the ECB, the Ifo would have certainly reduced the chances,” said Analyst.

The Dollar’s gains come as investors look closely at whether the Federal Reserve might be ready to pause in its aggressive run of interest rate cuts after an expected 25bp cut in the fed funds rate next week to 2%. The U.S. central bank has cut 300bp from its benchmark fed funds rate since last September in an effort to stave off recession. A report on weak new US home sales in March failed to provide lasting clues on the outlook for interest rates.

Today’s Key Issues (time in GMT):

00:00 AUD Market Holiday
00:00 NZD Market Holiday
10:00 CHF Swiss National Bank chairman Roth speaks after shareholder meeting
07:30 SEK March Trade Balance 12.5B vs 17.1B
08:00 EUR March Eurozone Money M3 10.8% vs 11.3%
08:30 GBP Q1 preliminary GDP 0.4% vs 0.6% (QoQ)
08:30 GBP Q1 preliminary GDP 2.6% vs 2.8% (YoY)
13:55 USD April University of Michigan Confidence Survey 63.2 vs 69.5

The Risk Today:

EurUsd: Euro reversed most of early week gains loosing more than 3cts from Tuesday 1.6019 all time high. Medium term trading range is still set between 1.5500 � 1.5800. Strong support hold 1.5528 (23.6% retracement of 1.4311-1.5904 advance). Psychological 1.5000 level marks strong key support before 1.4500 pivot point. Pivot point hold 1.6000 resistance ahead of key resistance 1.6200 market target. Initial support hold 1.5511 April 3rd low.

GbpUsd: Cable is consolidating around 1.9800. Further strength may open the way toward 2.0000 psychological level. Confirmation over 2.0100 major pivot point would set Cable free for more uptrend. Actual trading range is 1.9600 � 2.0000. Renewed pressure below 1.9800 may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance).

UsdJpy: It confimed strenght over 102. Further advance may open the way up to 105, then 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Fail to overtop 105 will bring back weakness in 100 � 103 consolidation trading range. Minor support holds 102.95 early April high.

UsdChf: Market broke up 1.0200 and further Dollar advance may bring market up to 1.0457 trendline resistance. A return below 1.0200 may reopen the way down 1.0000 and toward 0.9639 17th March low. Current uptrend looks set up over 1.0200 former resistance. Early January double top 1.1191 marks strong resistance.

Resistance and Support:

By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland