The Dollar rose against the Yen on Monday as the Oil price’s drop to a three-month low and some better US economic data generated optimism about the economy outlook. But caution ahead of Tuesday’s Federal Reserve meeting to decide on US interest rates saw the Dollar ease against the Euro. Data last week showed that the US economy expanded at an annual rate of 1.9% in Q2, up from 0.9% in Q1 of 2008. That raised outlook of higher US interest rates by the end of the year. But analysts generally expect the Fed to leave its benchmark overnight lending rate steady at 2% on Tuesday and deliver a neutral statement on future policy. Traders will also await rate decisions from the Bank of England and European Central Bank on Thursday. ECB President Jean-Claude Trichet’s statement may focus on rate-raising possibility. Early this morning, Reserve Bank of Australia left its benchmark rate at 7.25%.
[B]News and Events:[/B]
The Dollar rose against the Yen on Monday as the Oil price’s drop to a three-month low and some better US economic data generated optimism about the economy outlook. But caution ahead of Tuesday’s Federal Reserve meeting to decide on US interest rates saw the Dollar ease against the Euro. Analysts said traders were adjusting positions after Friday’s gains, which pushed the EurUsd to a five-week low.
Data last week showed that the US economy expanded at an annual rate of 1.9% in Q2, up from 0.9% in Q1 of 2008. Also, government data showed stronger-than-expected consumer spending and personal income in June, as well as an unexpected surge in consumer prices. That raised prospects of higher US interest rates by the end of the year. But analysts generally expect the Fed to leave its benchmark overnight lending rate steady at 2% on Tuesday and deliver a neutral statement on future policy. A separate report showed new orders at US factories increased more than expected in June.
UsdJpy touched a session peak of 108.29 as US light crude oil fell as low as 119.50, its lowest level since early May, halting a sharp decline in US stocks. At close, UsdJpy was up 0.53% to 108.23. EurUsd was unchanged at 1.5571 after trading as high as 1.5631. UsdChf was also unchanged at 1.0485 after hitting 1.0434 low. GbpUsd went 0.71% lower to 1.9614.
While the US central bank is expected to stress its continuing worry about inflation combined with a slowing economy, ECB President Jean-Claude Trichet’s statement may focus on rate-raising possibility. In July, the ECB raised rates by 25bp to 4.25%. Traders will also await rate decisions from the Bank of England.
Reserve Bank of Australia left its benchmark rate at 7.25%. AudUsd dropped this morning 0.98% to 0.9199.
[B]Today’s Key Issues (time in GMT):[/B]
04:30 AUD August RBA cash rate 7.25% vs 7.25%
08:00 EUR July Euro zone RBS/Markit Services PMI 48.3 vs 49.1
08:00 EUR July Euro zone RBS/Markit composite PMI 47.8 vs 49.3
08:30 GBP July CIPS/Markit Services PMI 46.7 vs 47.1
08:30 GBP June Industrial output 0.1% vs -0.8% (MoM)
08:30 GBP June Industrial output -1.2% vs -1.6% (YoY)
08:30 GBP June Manufacturing output 0.0% vs -0.5% (MoM)
08:30 GBP June Manufacturing output -0.7% vs -0.8% (YoY)
09:00 EUR June Euro zone Retail Sales -0.6% vs 1.2% (MoM)
09:00 EUR June Euro zone Retail Sales -1.2% vs 0.2% (YoY)
14:00 USD July ISM Non Manufacturing PMI 48.5 vs 48.2
14:00 USD July ISM Non Manufacturing Business Act 50 vs 49.9
20:15 USD FOMC rate decision 2% vs 2%
21:00 USD ABC CCI -47 vs -47
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Market went close to 1.5500 support last week. Further weakness might undermine the current 3-month uptrend. This may open the 1.5400 � 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low. Key initial resistance holds 1.6000. A break up there would open the way to Trendline resistance 1.6200. Initial support holds 1.5515 Friday low
[B]GbpUsd:[/B] Cable broke down last week the short term 1.9800 � 2.0100 trading range. It hit 2.0158 high 3-week ago and 1.9727 last week. Key level holds 2.0100 resistance. On the downside, yesterday 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 1.9600 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 108.38 last week. This Dollar rebound put focus on mid-June 108.59 resistance and 110.10 strong resistance (Trendline). Further advance would open the way toward 111.92 early January high. On the downside, a return below 105 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 1.0523 30th July 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