The Dollar rose against the Euro on Thursday after the Federal Reserve, which held interest rates steady as expected, reiterated concerns about lingering price pressures in the US economy. The Fed dropped from its policy statement a description of core inflation as �elevated�. But it also said its main concern was that inflation might fail to moderate.
The FOMC statement was more hawkish than people were expecting because of the inflation aspect. Markets were pricing in greater chances of a rate cut by the end of the year given the sub-prime and housing problems.
Investors had more risk appetite in the market as the rebound in global stock markets, helped by fading concerns about the US sub-prime mortgage market, prompted them to borrow the Japanese currency again to fund carry trades.
News and Events:
The Dollar rose against the Euro on Thursday after the Federal Reserve, which held interest rates steady as expected, reiterated concerns about lingering price pressures in the US economy. The Fed dropped from its policy statement a description of core inflation as �elevated�. But it also said its main concern was that inflation might fail to moderate. Analysts said markets ultimately reacted to the Fed�s inflation concerns by pushing the Dollar higher. The FOMC statement was more hawkish than people were expecting because of the inflation aspect. Markets were pricing in greater chances of a rate cut by the end of the year given the sub-prime and housing problems. But the statement did not state any particular concern about housing or sub-prime. Other analysts said the Fed�s assertion that �sustained moderation in inflation pressures has yet to be convincingly demonstrated� suggests a new focus on headline inflation, which unlike the core number includes food and energy costs.
Earlier in the session, the focus was on the return of the investors� risk appetite in the market, with the Yen�s three-day rally stalling on Thursday. A rebound in global stock markets, helped by fading concerns about the US sub-prime mortgage market, prompted investors to borrow the Japanese currency again to fund carry trades.
The high-yielding Australian and New Zealand dollars jumped against the Yen. NzdJpy gained as much as 1.5% to 94.83. AudJpy climbed 0.75% to 104.32, moving toward a 16-year peak 105.38 hit last week.
Today’s Key Issues (time in GMT):
08.30 GB May Net Consumer Credit �0.5B vs �0.5B
08.30 GB 1Q Current Account �-11.7B vs �-12.7B
08.30 GB 1Q final Gross Domestic Product 0.7% vs 0.7% (QoQ)
08.30 GB 1Q final Gross Domestic Product 2.9% vs 2.9% (YoY)
08.30 GB May Mortgage Approvals 105k vs 107k
09.00 EUR June Eurozone Consumer Confidence -1 vs -1
09.00 EUR June Eurozone Industrial Confidence 6 vs 6
09.00 EUR June Euro zone Economic Confidence 111.70 vs 111.90
09.00 EUR June Euro zone Services Confidence 22 vs 22
09.00 EUR June Euro zone Business Climate Indicator 1.50 vs 1.53
09.00 EUR June Euro zone Consumer Price Index estimate 1.9% vs 1.9% (YoY)
09.30 UK GfK Consumer Confidence -3 vs -2
12.30 CAD April Gross Domestic Product 0.2% vs 0.3% (MoM)
12.30 US May Personal Income 0.6% vs -0.1%
12.30 US May Personal Spending 0.7% vs 0.5%
12.30 US May Core PCE 0.1% vs 0.1% (MoM)
12.30 US May Core PCE 1.9% vs 2% (YoY)
12.30 US May PCE Deflator 2.4% vs 2.2%
13.45 US June Chicago Purchasing Managers Index 58 vs 61.7
14.00 US May Construction spending 0.1% vs 0.1% (MoM)
14.00 US June University of Michigan Confidence 84.2 vs 83.7
The Risk Today:
EurUsd Short term positive trend from last week remains active and focus shifted on 1.3500 and 1.3554 resistance from early June high. Renewed weakness below 1.3373 could open the way toward 1.3277 key support (50% retracement from 1.2872 to 1.3681 advance). Initial support holds 1.3373 last Thursday low.
GbpUsd bull trend from Friday 8 June will retest 2.0017 high from Tuesday. Further advance will focus on 2.0100 trend levels. Initial support holds 1.9912 Friday low. On the down side, despite 1.9823 support (61.8% retracement of the 1.9733-1.9969 rise); a return under 1.9900 could deep toward 1.9700 and 1.9659 (50% retracement of the 1.9184 to 2.0134 advance) next support.
UsdJpy had hit 124.15 Friday high but reversed gains Wednesday down to 122.24. Market found support there with 122.22 (former Trendline) and went back up to 123.34 yesterday. Renewed advance through 124.15 will reopen the way toward 125.57 December 2002 high.
UsdChf still consolidates on 1.2290 support (38.2% retracement of 1.1996 to 1.2470 advance) after hitting 1.2470 high on June 14th. This 3-months high 1.2470 marks the initial resistance. Return of the Dollar bull trend would open the way for a run toward 1.2573 and 1.2771 trends high. On the current downtrend, market is holding on 1.2290 support (38.2% retracement). A move lower than that will open the way toward 1.2178 support (61.8% retracement of 1.1996 � 1.2470 advance).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland