The Euro dropped against the Dollar on Thursday after European Central Bank President Jean-Claude Trichet said euro zone growth risks are to the downside, paving the way for lower interest rates this year. The Euro is now on track for its biggest weekly decline against the Dollar in two-and-a-half years. It was pressured from early in the session as the ECB left benchmark borrowing costs unchanged at 4% and Trichet, at a post-meeting press conference, also dropped his threat to act ahead of possible rising prices. In another rate-setting meeting on Thursday, the Bank of England cut borrowing costs by 25bp at 5.25%, citing a weak economic outlook. In contrast to the United States, Canada and Britain, the ECB has not yet gone down the path of cutting interest rates because of price pressures in the 15 countries using the Euro. In January, euro-zone inflation hit a record high. Recent signs of faltering growth in Spain, Italy and elsewhere in the bloc, however, suggest the ECB may soon have to switch its attention to supporting the euro zone economy. The US Federal Reserve has already slashed rates by 225bp and is seen cutting rates at least another 75bp by the end of the year.
News and Events:
The Euro dropped against the Dollar on Thursday after European Central Bank President Jean-Claude Trichet said euro zone growth risks are to the downside, paving the way for lower interest rates this year. The Euro is now on track for its biggest weekly decline against the Dollar in two-and-a-half years. It was pressured from early in the session as the ECB left benchmark borrowing costs unchanged at 4% and Trichet, at a post-meeting press conference, also dropped his threat to act ahead of possible rising prices. The Euro has come under pressure in the past couple of sessions amid growing signs the economy in the 15-member bloc looks weak. In another rate-setting meeting on Thursday, the Bank of England cut borrowing costs by 25bp at 5.25%, citing a weak economic outlook.
At yesterday close, EurUsd was down 0.94% at 1.4476 after dropping as low as 1.4440. It has lost 2.11% this week, heading for its biggest weekly fall since June 2006. UsdJpy rose 0.87% to 107.32, mostly on technical trading. EurJpy was little changed at 155.36 though it had traded between a low of 154.06 and a high of 156.19. Cable (GbpUsd) fell to a two-week low against the greenback at 1.9422 as the Bank of England cut rates by a 25bp to 5.25%, as expected, in a bid to head off a sharp consumer-led slowdown, and signaled further gradual policy easing ahead. In contrast to the United States, Canada and Britain, the ECB has not yet gone down the path of cutting interest rates because of price pressures in the 15 countries using the Euro. In January, euro-zone inflation hit a record high. Recent signs of faltering growth in Spain, Italy and elsewhere in the bloc, however, suggest the ECB may soon have to switch its attention to supporting the euro zone economy. The US Federal Reserve has already slashed rates by 225bp and is seen cutting rates at least another 75bp by the end of the year.
Going into the weekend, investors may be looking to any currency-related comments from the meeting of Group of Seven finance ministers and Central bankers in Tokyo.
Today’s Key Issues (time in GMT):
00:00 EUR Chinese New Year till Tuesday next week
11:00 CAD December Euro-zone OECD leading 98.1
12:00 CAD January unemployment rate 6% vs 5.9%
12:00 CAD January employment change 10k vs -2.9k
13:15 USD January Housing Starts 210k vs 187.5k
15:00 USD December Wholesale Inventories 0.3% vs 0.6%
17:55 USD Fed�s Pianalto speaks, Cleveland
18:00 EUR Fed�s Lockhart speaks on the economy, Atlanta
00:00 G7 finance ministers and Central Bankers meet in Tokyo over the weekend
The Risk Today:
EurUsd Rebounded from January 22nd 1.4366 low for a clear run through 1.4500 pivot point. Current trading range is set 1.4366 � 1.4952. Market traded as high as 1.4952 last Friday, in sight of 1.4967 resistance November high. Market broke yesterday 1.4500 pivot support, where below it, market might look down for 1.4280 next support after trendline support holding 1.4311 December low. Initial resistance holds 1.4652 yesterday high.
GbpUsd Cable went lower for the third consecutive day returning below 1.9590 (38.2% retracement of 1.7049 � 2.1161 advance). Further pressure below 1.9800 might open the door toward 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Return in uptrend might be only confirmed over 2.0000 key level before 2.0100 resistance. Initial resistance holds 1.9959 last week high.
UsdJpy It remains weak below 108, having tested 104.97 low 23rd January. Initial resistance holds 107.89 Friday high. Strong resistance holds 110.10 previous week double top ahead of 111.92 early January high. Pressure will be relieved over 108. Meanwhile, current trend may look for 106 support and next 104.97 support ahead of 104.20 trendline support.
UsdChf Posted a 2 � week high yesterday at 1.1104. Initial resistance holds 1.1123 late January high. Market might look for 1.1130 (38.2% of 1.1603 � 1.0838 decline). Early January double top 1.1191 marks strong resistance. Initial support holds 1.0933 yesterday low, 2 figures away from last Friday low 1.0732.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland