The Swiss franc surged on Friday on renewed speculation the Swiss National Bank will push official interest rates higher, sparking some concern that Central Banks may be trying to disrupt yield-seeking carry trades. Investors hungry for higher returns continued to punish the low-yielding Yen, sending it to a 4 � year low against the Dollar and a record high against the Euro. The Swiss government revised up its growth forecasts for this year and next and also its inflation outlook, leading markets to price in a better than 50/50 chance the SNB will raise benchmark rates a 0.5% in September. Markets expect two more euro-zone interest rate hikes in 2007, while the Federal Reserve is expected to stay on hold at 5.25% this year. Sterling and the New Zealand dollar were also beneficiaries of the carry trades, with the Cable approaching $2.0000 for the first time since late April.
News and Events:
The Swiss franc surged o n Friday on renewed speculation the Swiss National Bank will push official interest rates higher, sparking some concern that Central Banks may be trying to disrupt yield-seeking carry trades. Investors hungry for higher returns continued to punish the low-yielding Yen, sending it to a 4 � year low against the Dollar and a record high against the Euro. Euro strength against the Yen spilled over as the EurUsd hit a two-week high.
The Dollar fell almost 1% to 1.2296 after the Swiss Central Bank let one-week repo rates rise, just a week after lifting the benchmark lending rate to 2.5%. The Dollar logged its largest daily decline against the Swiss franc in four months. The Swiss government also revised up its growth forecasts for this year and next and also its inflation outlook, leading markets to price in a better than 50/50 chance the SNB will raise benchmark rates a 0.5% in September. That makes the Yen �the focal point for risk-taking�, according to analysts� comments, since Japanese policy-makers are not expected to raise interest rates ahead of a July parliamentary election.
Euro hit a lifetime high of 166.94 while the Dollar rose above 124 Yen for the first time since late 2002. EurUsd rose 0.56% to 1.3466, its biggest gain in almost 2 months. Markets expect two more euro-zone interest rate hikes in 2007, while the Federal Reserve is expected to stay on hold at 5.25% this year. Sterling and the New Zealand dollar were also beneficiaries of the carry trades, with the Cable approaching $2.0000 for the first time since late April. Both were at multiyear highs against the Yen. The Kiwi rose above 0.7680 on Friday, the highest level since being floated in 1985 as market talks that the Central Bank could intervene at or above 0.7700. The Reserve Bank of New Zealand entered the market earlier in June to weaken the currency, but interest rates of 8% continued to attract money to the market.
Today’s Key Issues (time in GMT):
06.00 EUR July GfK Consumer Sentiment 7.8 vs 7.3
14.00 US May Existing Home Sales -0.3% vs -2.6% (MoM)
14.00 US May Existing Home Sales 5.97M vs 5.99M
The Risk Today:
EurUsd broke up 1.3400 on Friday. Recent last week bull trend is still active and focus remains on 1.3500 and 1.3554 resistance from early June high. Further 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 former resistance.
GbpUsd bull trend from Friday 8 June remains active and holding above 1.9900 key level putting 2.0000 key and 2.0100 trend levels into focus again. Initial support holds 1.9912 intraday 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 remains still strong from 123.75 Monday�s high hitting 124.13 Friday high. Further advance might open the way toward 125.57 December 2002 high. Strong support is located at 122.22 (former Trendline) and initial support holds 123.10 last Thursday/Friday conjunction.
UsdChf is placing a short term downtrend from 1.2470 last week high. 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 erased 1.2359 former support (23.6% retracement of 1.1996 to 1.2470 advance) and is looking for further set back to 1.2290 (38.2% retracement).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland