The Dollar rose for a fourth straight day overall to a seven-month peak versus the Yen and a six week high against the Euro on Wednesday, as the slide in oil prices to a new three month low raised hopes economic growth would pick up and inflation would subside. Earlier this week, Fed kept short term interest rates unchanged but was perceived as being slightly more concerned about slow economic growth than it was about inflation Demand for the Euro fell ahead of the European Central Bank policy meeting today. While the bank is expected to leave benchmark borrowing costs steady at 4.25%, analysts think ECB President Jean-Claude Trichet could soften his hawkish rhetoric, citing more data pointing to slower euro-zone growth. Bank of England is also expected to leave rate unchanged at 5%, the lowest since December 2006.
[B]News and Events:[/B]
The Dollar rose for a fourth straight day overall to a seven-month peak versus the Yen and a six week high against the Euro on Wednesday, as the slide in oil prices to a new three month low raised hopes economic growth would pick up and inflation would subside.
On Tuesday the Fed kept short term interest rates unchanged but was perceived as being slightly more concerned about slow economic growth than it was about inflation, meaning it was unlikely to raise interest rates in the near future.
A report on Wednesday showed German manufacturing orders for June dropped by a sharp 2.9%. The EurUsd fell 0.27%% at 1.5424, a six week low. The UsdJpy’s break above a key technical level around 108.60 also contributed to the Dollar’s rally. It raced to 109.88, its highest level since early January. It was last trading at 109.49, up 1.05%.UsdChf rose 0.51% to 1.0538. GbpUsd dropped 0.39% to 1.9479 after posting 1.9596 intraday high.
Demand for the Euro fell ahead of the European Central Bank policy meeting today. While the bank is expected to leave benchmark borrowing costs steady at 4.25%, analysts think ECB President Jean-Claude Trichet could soften his hawkish rhetoric, citing more data pointing to slower euro-zone growth. While the interest rate differentials between the United States and Europe still favor the Euro in the short term, Browne said slowing growth in the euro zone will eventually lead the ECB to cut borrowing costs despite worries about inflation. Bank of England is also expected to leave rate unchanged at 5%, the lowest since December 2006.
[B]Today’s Key Issues (time in GMT):[/B]
06:00 EUR June Germany Exports +4.2% vs -3.2% (MoM)
06:00 EUR June Germany Import -0.1% vs 0.7% (MoM)
06:00 EUR June Trade Balance �18.1B vs �14.6B
07:30 SEK July CPI -0.1% vs 0.5% (MoM)
07:30 SEK July CPI 4.4% vs 4.3% (YoY)
10:00 EUR June Industrial output 0.8% vs -2.4% (MoM)
11:00 GBP BoE rate decision 5% vs 5%
11:45 EUR ECB rate decision 4.25% vs 4.25%
12:30 USD weekly Initial claims 423k vs 448k
12:30 CAD June Building permits -1% vs 1.1%
14:00 USD June Pending sales change -1% vs -4.7%
19:00 USD June Consumer credit $6B vs $7.8B
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Market dropped to 1.5424 low yesterday. Further weakness might undermine the current 3-month uptrend. This may confirm the 1.5400 � 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low. On the upside, key initial resistance holds 1.6000. A break up there would open the way to Trendline resistance 1.6200. Initial support holds 1.5447.
[B]GbpUsd:[/B] Cable broke down last week the short term 1.9800 � 2.0100 trading range. It hit 2.0158 high 3-weeks ago and 1.9467 low yesterday. Key level holds 2.0100 resistance. On the downside, Monday break below 1.9649 support open the focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Initial support holds 1.9467 yesterday low. Strong support holds 1.9363 20th February and 14th May low.
[B]UsdJpy:[/B] Last two-week recovery pushed the market up to 109.88 high yesterday. This broke 108.59 former resistance put focus on 110.10 strong resistance (Trendline). Further advance would open the way toward 111.92 early January high. On the downside, a return below 108.59 former resistance will undermine the current advance. Profit taking might bring back down to 105 level and may open the way toward 102.73 support and 100 pivot point.
[B]UsdChf:[/B] Last two-week Dollar strength pushed over 1.0500 last week. Initial resistance holds 1.0610 yesterday high. This is confirming the view for a 1.0200 � 1.0600 consolidation range. Renewed weakness below 1.0200 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.
[B]Resistance and Support:[/B]
By[B] Jean-Claude Braha [/B]- ACM Advanced Currency Markets, Geneva, Switzerland