The Dollar hit a new record low against the euro on Tuesday as a surprise plunge in US consumer confidence to nearly two-year lows raised expectations of another Federal Reserve interest rate cut next month. That view gained more traction on another report on Tuesday showing sales of existing US homes slipped by 4.3% in August, a sign of yet more weakness in the housing market. Interest rate futures are pricing in a 95% chance of a quarter point cut in October, up from 72% on Monday.
Some analysts say the prospect of a future euro-zone rate cut or a nearer-term technical rebound mean the Euro’s rally against the Dollar may be close to an end. On Monday, the government of French President Nicolas Sarkozy repeated its complaints that the Euro’s strength was eroding the competitiveness and productivity of firms.
Bank of International Settlements released a report showing daily Global Forex turnover and the number of transactions involving the US Dollar.
News and Events:
The Dollar hit a new record low against the euro on Tuesday as a surprise plunge in US consumer confidence to nearly two-year lows raised expectations of another Federal Reserve interest rate cut next month. This was the fourth straight session that the Dollar tested all-time lows against the Euro, which has gained on signs of weaker US growth and the view that lower US rates will continue to erode the Dollar’s yield advantage. That view gained more traction on another report on Tuesday showing sales of existing US homes slipped by 4.3% in August, a sign of yet more weakness in the housing market.
The Fed’s half point cut in its benchmark overnight lending rate last week left the Dollar on the defensive, and interest rate futures are pricing in a 95% chance of a quarter point cut in October, up from 72% on Monday. The fed funds rate is at 4.75%, while the euro-zone refinancing rate stands at 4%.
The EurUsd last traded at 1.4147 up 0.52% and just below an all-time high of $1.4162 hit earlier. The Dollar also fell against the Yen, trading at 114.62, down 0.19% after having hit 114.02 low on the day. The Dollar rose against Sterling, however, after a report in a British newspaper sparked worries over troubles in the UK financial sector arising from the credit crisis. GbpUsd traded at 2.0182, down 0.1%, after touching 2.0085 low on the day.
The US Conference Board’s index of consumer sentiment fell to 99.8 in September, the lowest since November 2005 and down from 105.6 in August. Economists expected a more modest slip to 104.0. Earlier, the Euro was unfazed by a report showing German Ifo business confidence survey surprised on the weaker side. Analysts said the Ifo survey was yet another sign of a softening in the euro zone economy, a situation that hinted at steady interest rates there for the rest of 2007 and possible monetary easing early next year. Some analysts say the prospect of a future euro-zone rate cut or a nearer-term technical rebound mean the Euro’s rally against the Dollar may be close to an end. On Monday, the government of French President Nicolas Sarkozy repeated its complaints that the Euro’s strength was eroding the competitiveness and productivity of firms.
Also on Tuesday, the Bank of International Settlements released a report showing daily Global Forex turnover rose to $3.2 trillion per day in 2007 from $1.9 trillion in 2004. The report also showed that the number of transactions involving the US dollar fell to 86% this year from 89% three years ago.
Today’s Key Issues (time in GMT):
08.30 UK 2Q Growth Domestic Product final 0.8% vs 0.8% (QoQ)
08.30 UK 2Q Growth Domestic Product final 3% vs 3% (YoY)
08.30 UK 2Q Current Account -�11.3B vs -�12.2B
09.30 CHF September KOF indicator 2.01 vs 2.06
11.00 US Sept 21st MBA Mortgage market change
12.30 US Aug Durable Goods Orders -3.1% vs 6%
12.30 US Aug Durable Goods Orders ex-trans -1% vs 3.8%
[I]Full Moon holiday in Hong Kong today.[/I]
The Risk Today:
EurUsd trend remains positive. Yesterday 1.4162 marks initial resistance before a new extension to 1.4291. Initial support holds 1.4000 former resistance. Nearby support cuts at 1.3927 where a lower development would threaten the up-trend, but it would need a return below 1.3719 to confirm trend change.
GbpUsd conditions remain neutral in Monday/Tuesday 2.0319 / 2.0085 range. Sterling hit yesterday 2.0085 low before recovering up to 2.0182 at close. Resistance holds 2.0366 high from September 12. A move further this would open the way to 2.0398 early August high. Former 2.0200 support failed and let the way open toward 2.0000 psychological level. Beyond that point, 1.9821 marks strong support (76.4% retracement of 1.9652 to 2.0366 advance).
UsdJpy The downtrend remains intact below 117.13 major resistance. Confirmation over this level is needed to relieve the negative tone and open the way for an extend toward 119.36 (61.8% retracement of 124.15 to 111.60 decline). On the downside, a return below 113.39 (Sept. 11 low) would open the way toward 112.61 and a possible retest of 111.60 (August 17 low).
UsdChf remains negative in recent downtrend after having broken 1.1816 former key support and moreover yesterday break of 1.1741 support. Further weakness will open the way down to 1.1500 psychological support and possibly 1.1484 (2005 March 14 low). However, on the uptrend, a recovery beyond 1.1923 and 1.1962 is needed to relieve the actual bear threat.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland