Dollar rose on Friday helped by fading chance for another strong rate cut at this week Fed meeting
The Dollar rose on Friday as investors scaled back bets for another aggressive Federal Reserve interest rate cut this week and on optimism a $150 billion stimulus package would help support the US economy. US stocks extended losses and safe-haven Treasury bond prices rose, reflecting considerable uncertainty about the near-term outlook. The Fed’s emergency 75bp rate cut last Tuesday, precipitated by sharp falls in global stocks, prompted investors to price in 50bp reduction from the US central bank at this week’s scheduled policy meeting. A heavy data calendar awaits investors this week, including the January non-farm payrolls, which could decide the direction of the recession debate.
News and Events:
The Dollar rose on Friday as investors scaled back bets for another aggressive Federal Reserve interest rate cut this week and on optimism a $150 billion stimulus package would help support the US economy. However, concerns about an extended fall in US equities gave some support to the Japanese currency up against the Dollar. US stocks extended losses and safe-haven Treasury bond prices rose, reflecting considerable uncertainty about the near-term outlook.
The Fed’s emergency 75bp rate cut last Tuesday, precipitated by sharp falls in global stocks, prompted investors to price in 50bp reduction from the US central bank at this week’s scheduled policy meeting. Losses in European stock markets on Thursday and earlier on Friday were largely linked to fallout from a trader scandal at the French bank Socgen. Rate futures suggest a 76% chance of a 50bp reduction in the fed funds rate target to 3% at the Fed meeting Jan. 29-30.
The EurUsd dropped to a session low of 1.4661. It was last trading at 1.4611, down 0.62%. Some traders cited profit-taking ahead of the weekend. UsdJpy slid to an intraday low of 106.73, -0.41%, tracking the slide in equities. UsdChf traded up 0.91% to 1.0967, not far from intraday high 1.0990. EurGbp dropped 0.88% to 0.7403.
With the European Central Bank’s interest rate at 4% and monetary authorities maintaining their hawkish inflation rhetoric, aggressive Fed easing would further undermine the Dollar’s yield appeal against the Euro.
Weaker-than-expected consumer inflation data held the Canadian dollar down against the greenback as it backed expectations of a rate cut from the Bank of Canada. UsdCad was down 1.87% at 1.0045, off a session peak of 1.0257.
A heavy data calendar awaits investors this week, including the January non-farm payrolls, which could decide the direction of the recession debate.
Today’s Key Issues (time in GMT):
00:00 AUD Australian Market Holiday
09:00 EUR December Euro-zone M3 annual growth 12.2% vs 12.3%
09:00 EUR December Euro-zone Private loans 10.9% vs 11%
15:00 USD December New Home Sales 640k vs 647k
17:00 USD December Midwest manufacturing 105
23:50 JPY December All Households spending -0.2% vs -0.6%
23:50 JPY December Unemployment rate 3.9% vs 3.8%
23:50 JPY December Retail Sales 0.1% vs 1.6%
02:00 USD President Bush delivers the annual State of the Union address
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. Tuesday 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 over 1.9800 short term Trendline and 2.0000 key level ahead 2.0100 resistance. Meanwhile, renewed downtrend pressure 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 last week double top ahead of 111.92 early January high.
UsdChf dropped Thursday to 1.0846 low, close to 1.0838 16th January 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