The Dollar and the yen traded little changed against major currencies on Wednesday, paring earlier gains after stocks staged a late rally on Wall Street. The euro and the Sterling came under pressure through most of the session ahead of interest rate decisions by Central Banks in the euro zone and Britain. The New Zealand dollar showed a limited reaction after the country’s central bank cut interest rates by a record 150bp to 5%. The European Central Bank is seen cutting rates on Thursday by at least 50bp to 2.75%, but many economists are expecting a 75bp cut. Bank of England may slash rates by 100bp from 3%.
News and Events:
The Dollar and the yen traded little changed against major currencies on Wednesday, paring earlier gains after stocks staged a late rally on Wall Street. The euro and the Sterling came under pressure through most of the session ahead of interest rate decisions by Central Banks in the euro zone and Britain. Expectations are high that they will ease monetary policy aggressively to boost flagging economies and counter the threat of deflation.
US stocks ended higher in choppy trading, diminishing demand for the safe-haven Dollar and the low-yielding Yen. But analysts said worries over a slumping global economy continue to weigh heavily on sentiment in financial markets.
Yesterday, EurUsd was 0.59% lower at 1.2635. UsdJpy was little changed at 93.16 having touched 92.54 low. EurJpy was also flat at 118.35. GbpUsd was 0.81% lower at 1.4780 while GbpJpy was 0.83% lower at 137.66. UsdChf rose 0.76% at 1.2157.
As the global economy slows sharply in recent months, investors have rewarded currencies of countries that have aggressively cut interest rates, analysts said. The New Zealand dollar showed a limited reaction after the country’s central bank cut interest rates by a record 150bp to 5%. The move was widely expected. The European Central Bank is seen cutting rates on Thursday by at least 50bp to 2.75%, but many economists are expecting a 75bp cut. Sterling fell broadly after data showed that the UK services sector shrank faster than expected in November. The news boosted expectations that the Bank of England may slash rates by at least a full percentage point from 3% today to shore up the domestic economy.
Today’s Key Issues (time in GMT):
06:45 CHF Q3 GDP 0% vs 0.4% (qoq)
06:45 CHF Q3 GDP 1.6% vs 2.3% (yoy)
08:30 SEK Riksbank rate 2% vs 3.75%
10:00 EUR Q3 Euro-zone GDP revised -0.2% vs -0.2% (qoq)
10:00 EUR Q3 Euro-zone GDP revised 0.7% vs 1.4% (yoy)
12:00 GBP BoE rate decision 2% vs 3%
12:00 EUR ECB rate decision 2.75% vs 3.25%
13:30 USD weekly Initial claims 537k vs 529k
13:30 CAD October Building permits -6.78% vs 13.4%
14:15 USD Fed�s Fisher speaks at energy conference, New Orleans
15:00 USD October Factory orders -4% vs -2.5%
15:00 CAD November Ivey PMI 50.5 vs 52.2
16:15 USD Fed�s Bernanke speaks at America�s Banker of the Year 2008 Awards.
The Risk Today:
EurUsd: Market is still trading in the last 3-week trading range 1.2330 � 1.3298 but breaking up the triangle consolidation pattern. This may open the way to 1.3500 target equal to 1.3302-1.2334 spread. On the further upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3298 end October high. On the downside, recent weakness below 1.2690 may open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low.
GbpUsd: Market dropped as low as 1.4558 on November 13th in current 3-month downtrend dropping from late October 1.6673 high. Strong supports hold 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 30th October high ahead of 1.7080 (38.2% retracement of 2.1161 � 1.4558). Further resistance holds 1.7860 (50% retracement). Trading range is set between Tuesday 25th 1.5534 high and 1.4558 November 13th low, respectively initial resistance and support.
UsdJpy: Market confirmed Monday the break down November triangle pattern. Yesterday, pressure did open the way down to 92.88 low. Strong support holds 90.91 24th October low. Further downtrend may open 79.70 April 1995 low. On the upside, strong resistance holds 100 pivot point, but only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 97.43 last week high.
UsdChf: Market hit 1.2298 high on 21st November. Further strength may look for 1.2463 strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 � 0.9639 decline). On the downside, renewed weakness below 1.1605 initial support and 1.1203 30th October low would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland