The Dollar slid to a record low against a basket of major currencies on Monday, extending its broad sell-off on expectations that the Federal Reserve will trim interest rates this week and possibly again later this year. The Fed is widely seen cutting rates by 0.25bp to 4.5% on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market’s downturn.
The BOJ is widely expected to keep rates on hold at 0.5% in the coming months as it waits to see more evidence of the US economy’s health and gauge the potential impact on Japan.
Dominant themes of the market at the moment: the Australian Dollar, higher Gold prices are a positive along with the expectations for a Reserve Bank of Australia rate hike next month. The Canadian dollar, the Oil price surge is seen as a boon for the energy exporter.
News and Events:
The Dollar slid to a record low against a basket of major currencies on Monday, extending its broad sell-off on expectations that the Federal Reserve will trim interest rates this week and possibly again later this year. The Dollar’s woes helped drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high near 793 an ounce, boosting the Australian Dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.
The Fed is widely seen cutting rates by 0.25bp to 4.5% on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market’s downturn. The likelihood of lower US benchmark rates sent investors away from US assets and into other currencies, particularly European currencies and those of commodity producers such as the Australian and Canadian dollars.
Market players awaited this week’s US economic reports and comments from the Fed that may give hints about the central bank’s thinking on monetary policy to see if the dollar will extend its slide or stage a rebound. US economic data due this week includes snapshots on Manufacturing and employment that will show the extent to which growth is suffering and shed light on how much further the Fed may lower rates.
The Euro jumped to a record high of 1.4435 early this morning, the highest since its launch in 1999. The single currency’s jump above 1.44 triggered a wave of buying orders tied to option positions and sparked broad Dollar selling as a result. This morning, the UsdJpy was little changed at 114.21 but held off a six-week low of 113.25 as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in the risky carry trade. The AudUsd vaulted as high as 0.9265, the highest since 1984.
Trading activity was relatively subdued with few major items of data or speakers on Monday before this week’s array of events, which also include a Bank of Japan policy meeting and its twice-yearly report on the economic and price outlook on Wednesday.
The BOJ is widely expected to keep rates on hold at 0.5% in the coming months as it waits to see more evidence of the US economy’s health and gauge the potential impact on Japan.
As the prospect of more monetary easing by the Fed has boosted stock markets around the world, some investors have shifted back to the carry trade. But traders said carry trades were not the dominant theme of the market at the moment, and instead individual currencies were benefiting from specific factors. For the Australian Dollar, higher Gold prices are a positive along with the expectations for a Reserve Bank of Australia rate hike next month. For the Canadian dollar, the Oil price surge is seen as a boon for the energy exporter. UsdCad dollar slid as low as 0.9578, a 33-year low.
Today’s Key Issues (time in GMT):
09:30 GBP Sept Consumer Credit � 0.9B vs � 1B
09:30 GBP Sept Mortgage Approvals 102 vs 109
16:00 USD Sept Midwest manufacturing previously 105.6
18:15 EUR ECB’s Gonzalez-Paramo speaks
23:30 JPY Sept Unemployment rate 3.8% vs 3.8%
23:30 JPY Sept Job-to-applicant ratio 1.06 vs 1.06
23:30 JPY Sept Household Spending 1.3% vs 1.6%
The Risk Today:
EurUsd hit new high 1.4438 this morning breaking over 1.4400 resistance. This put into focus 1.4500 key level. On the downside, a return below 1.4280 former resistance may reopen the way down to 1.4000 nearby support and 1.3927 where a lower development would threaten the up-trend. On a long term view, it would need a return below 1.3719 to confirm trend change. Initial support holds 1.4400 former resistance.
GbpUsd hit earlier a new 3-month 2.0583 high. Initial resistance 2.0500 has been broke last week and open the way to 2.0574 resistance and 2.0654 key resistance. On the downside, it would need renewed pressure below 2.0200 and further weakness toward 2.0000 psychological level and 1.9880 support to confirm trend change. Beyond that point, 1.9821 marks strong support (76.4% retracement of 1.9652 to 2.0366 advance). Initial support holds 2.0500 former resistance.
UsdJpy has been consolidating within last week high and low 115.03 and 113.26. Further drop below 113.26 might push toward 112.61 and retest of ultimate 111.60 (August 17 low). On the upside, it still need a confirmation over 117.63 resistance to open the way for further extend toward 119.06 (61.8% retracement of 123.67 to 111.60 decline). Key support holds 114.
UsdChf dropped down to 1.1607 on Monday near last week 1.1602 low. Initial resistance holds 1.1790 (23.6% retracement of 1.2477 to 1.1577 decline) and strong resistance 1.1923 (38.2%). However, recent downtrend development below 1.1680 former key level reopened the way toward 1.1500 psychological support and possibly 1.1484 (2005 March 14 low).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland