The Dollar rose at a 3-week high against Euro at 1.3313 yesterday, helped by persistent signs of economic weakness in the euro-zone that may force ECB to slash interest rates further. It also continued to benefit from a planned US stimulus package, with investors betting this would help the US economy recover from its recession sooner than other industrialized countries. A drop in euro-zone inflation boosted expectations the European Central Bank will continue to cut interest rates. ECB is expected to cut rate by 50bp or more at its policy meeting next week. Traders await policy meeting by the Bank of England, which is expected to cut interest rates to help recovery in current deep recession. BoE will start a 2-day monetary policy meeting later today and investors see the possibility of a 50bp rate cut from current 2%, even with a chance of a bigger rate cut may be schedule.
News and Events:
The Dollar rose at a 3-week high against Euro at 1.3313 yesterday, helped by persistent signs of economic weakness in the euro-zone that may force ECB to slash interest rates further. It also continued to benefit from a planned US stimulus package, with investors betting this would help the US economy recover from its recession sooner than other industrialized countries.
Minutes from the Federal Reserve’s last policy meeting suggested the Central bank is concerned that downside risks remain even with the global positive sentiment early this week. Federal Reserve wanted to send a clear message that they intended to keep interest rates very low for a long time to help the economy recover from a recession.
The Euro fell broadly after a drop in euro-zone inflation boosted expectations the European Central Bank will continue to cut interest rates, which would likely reduce the appeal of Euro against Dollar. The ECB is expected to cut rate by 50bp or more at its policy meeting next week. ECB officials have suggested that rates could come down more in the future. With ECB targets inflation at just below 2%, many intervenient think that level keeps the door open to more aggressive rate cuts from the current 2.5% to economy recovery.
Yesterday, EurUsd dropped 0.97% to 1.3506 having hit 1.3313 intraday low, its weakest since December 12. UsdJpy rose 0.16% to 93.39 after hitting 94.64 intraday high. EurJpy lost 0.79% to 126.14. GbpUsd rose 1.32% to 1.4911 reversing from earlier 1.4504 low. UsdChf rose 1.46% to 1.1247 after having hit 1.1077 low. EurGbp dropped 2.27% to 0.9058 from 0.9299 intraday high.
US data on Tuesday showed a drop in factory orders and pending home sales.
Traders await policy meeting by the Bank of England, which is expected to cut interest rates to help recovery in current deep recession. BoE will start a 2-day monetary policy meeting later today and investors see the possibility of a 50bp rate cut from current 2%, even with a chance of a bigger rate cut may be schedule.
Today’s Key Issues (time in GMT):
09:00 EUR December German Unemployment rate 7.5% vs 7.5%
09:00 NOK November Credit indicator 11.4% vs 11.9%
09:00 NOK November Labor force survey 2.6% vs 2.5%
10:00 EUR December Euro-zone Producer Prices -1% vs -0.8% (mom)
10:00 EUR December Euro-zone Producer Prices 4.3% vs 6.3% (yoy)
13:15 USD December ADP National Employment -473k vs -250k
The Risk Today:
EurUsd: Market traded as high as 1.4720 in December but reversed most of its gain down to 1.3313 low yesterday. Renewed strength may open the way to 1.4867 23rd October high. A return over 1.5000 will clear the last 3-month pressure and may put key resistance 1.6000 into focus. Initial resistance holds 1.4363 last week high. On the downside, 1.3600, former resistances, hold supports. Further support holds 1.2208 trendline support. Next long-term support holds 1.1640 November 2005 low and therefore 1.0739 September 2003 low.
GbpUsd: Market reversed most of Cable gains from mid-December and traded below 1.5000. On the downside, strong supports hold 1.4471 December low ahead of 1.3682 March 2001 low. Further support holds 1.4354 31st December low. Sentiment remains mixed but renewed strength may open the way to 1.6075 (38.2% retracement of 1.8669 � 1.4471 decline) and even 1.6570 (50% retracement). Uptrend may look for 1.6673 30th October high strong resistance. Further resistance holds 1.7816 (50% retracement of 2.1161-1.4471 decline).
UsdJpy: UsdJpy broke up the 4-month downtrend upper trendline and hit 94.64 high yesterday. On the upside, strong resistance holds 100 pivot point, but only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 97.43 24th November high. Strong support holds 87.14 17th December low. Renewed downtrend may open 79.70 April 1995 low.
UsdChf: Market traded as low as 1.0373 on 29th December in last months downtrend and recovered up to 1.1279 yesterday. Uptrend may open the way through 1.1282 and possible trend up to 1.2298, 21st November high. Over it, 1.2463 holds strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 � 0.9639 decline). Renewed weakness may return to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland