The Dollar rose from a near record low against the Euro on Monday after the United States announced an emergency plan to restore confidence in mortgage finance companies Fannie Mae and Freddie Mac. The plan helped calm market concerns about the health of the US financial and housing sectors, since the two companies fund half of all US mortgages. Billionaire investor George Soros told Reuters on Monday that government debt accumulation coupled with a U.S. recession leaves the Dollar vulnerable. Analysts said the Dollar’s recovery would depend on whether the U.S. initiatives were enough to calm investors’ concerns about the financial health of Fannie Mae and Freddie Mac. Investors will also be watching to see how the latest developments affect Fed Chairman Ben Bernanke’s views on monetary policy and the economic outlook when he testifies before the Senate Banking Committee on Tuesday. Money markets have scaled back their expectations for monetary policy tightening from the Fed and now don’t expect it to start hiking until the final months of the year.
News and Events:
The Dollar rose from a near record low against the Euro on Monday after the United States announced an emergency plan to restore confidence in mortgage finance companies Fannie Mae and Freddie Mac.
The US Treasury boosted its direct credit lines to the two shareholder-owned but government-sponsored enterprises and said it would buy their shares if asked, while the Federal Reserve made available its direct lending window to financial firms. The plan helped calm market concerns about the health of the US financial and housing sectors, since the two companies fund half of all US mortgages. Underlining these tensions, federal regulators seized mortgage lender IndyMac Bancorp on Friday, one of the largest banks to fail in US history.
Yesterday, EurUsd was down 0.08% at 1.5890 after slipping to 1.5842. UsdJpy rose 0.08% to 106.21, well off Monday’s high of 106.81. GbpUsd rose 0.2% to 1.9949 after hitting 1.9813 low. UsdChf rose 0.1% to 1.0171 after posting 1.0251 high.
Billionaire investor George Soros told Reuters on Monday that government debt accumulation coupled with a U.S. recession leaves the Dollar vulnerable. Analysts said the Dollar’s recovery would depend on whether the U.S. initiatives were enough to calm investors’ concerns about the financial health of Fannie Mae and Freddie Mac. Russia’s central bank said over the weekend it was happy with its holdings of roughly $100 billion of agency bonds, which includes Fannie Mae and Freddie Mac, but other central banks were silent. As of mid-2007, China and Japan were the biggest long-term investors in agency bonds at $376 billion and around $228 billion respectively, according to US Treasury data.
Investors will also be watching to see how the latest developments affect Fed Chairman Ben Bernanke’s views on monetary policy and the economic outlook when he testifies before the Senate Banking Committee on Tuesday. Money markets have scaled back their expectations for monetary policy tightening from the Fed and now don’t expect it to start hiking until the final months of the year.
Today’s Key Issues (time in GMT):
08:00 NOK June Trade Balance previous 39.7B
08:30 GBP June CPI 0.4% vs 0.6% (MoM)
08:30 GBP June CPI 3.6% vs 3.3% (YoY)
08:30 GBP June RPI 0.5% vs 0.5%% (MoM)
08:30 GBP June RPI 4.3% vs 4.3% (YoY)
09:00 EUR July Germany ZEW Current conditions 32.7 vs 37.6
09:00 EUR July Germany ZEW economic sentiment -55 vs 52.4
12:30 USD July NY Fed manufacturing -8 vs -8.68
12:30 USD June Producer prices 1.3% vs 1.4% (MoM)
12:30 USD June Producer prices core 0.3% vs 0.2% (MoM)
12:30 USD June Retail sales ex-autos 1% vs 1.2% (MoM)
12:30 USD June Retail sales 0.4% vs 1% (MoM)
13:00 CAD BoC rate decision 3% vs 3%
14:00 USD May Business Inventories 0.5% vs 0.5%
23:50 JPY May Tertiary sector index 0.0% vs 1.8%
00:00 JPY July BoJ rate decision 0.5% vs 0.5%
The Risk Today:
EurUsd: Market hit 1.5971 high last week. This marks initial resistance ahead of 1.6000 Pivot point resistance. A break there would open the way to key resistance 1.6200. On the downtrend, return below 1.5800 will undermine the recent uptrend. Any may bring back 1.5400 � 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low.
GbpUsd: Cable is still in its long term trading range 1.9400 � 2.0000. Further advance will find resistance at 2.0007 1st July high and 2.0027 21st April High. Key level holds 2.0100. On the downside, only a return below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Initial support holds 1.9649 July 7th low. Strong support holds 1.9363 20th February and 14th May low.
UsdJpy: Previous 3-month up-trend is now on hold as market broke down 100-108 support Trendline. Trend in which 108.59 16th June high marks strong resistance. Renewed advance over mid-June 108.59 would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high. Recent profit taking would bring the market below 105 and maybe back into 100 � 104 consolidation trading range. Strong support holds 105.66 11th July low.
UsdChf: Market is heading back to early month 1.0112 low. Further support holds 1.0100 Pivot point. Further weakness below that level may open the way toward 0.9637 17th March low. Renewed strength over 1.0200 would reopen the 1.0200 � 1.0600 consolidation range. June 13th 1.0541 high holds initial.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland