The Dollar hit a record low against the Euro for the third straight session on Monday amid fears that a deepening housing slump could pressure on economic growth and trigger more cuts in US interest rates. Investors are worried that weak economic reports will push the Federal Reserve to follow last week’s half-percentage-point rate cut with more policy easing, further eroding the dollar’s yield advantage over other currencies, particularly the Euro. Several Wall Street firms have downgraded their outlook on US Gross Domestic Product over the next several quarters.
French presidential aide who said euro strength was eroding European competitiveness and business productivity. ECB President Jean-Claude Trichet also brushed off the remarks, saying the central bank’s main task was to ensure price stability.
The Dollar rose against Sterling on Tuesday as a report in a British newspaper stirred concerns over deepening problems in the UK’s financial sector due to the credit crunch.
News and Events:
The Dollar hit a record low against the Euro for the third straight session on Monday amid fears that a deepening housing slump could pressure on economic growth and trigger more cuts in US interest rates.
Trading was light as attention shifted to existing-home sales and consumer confidence data due today.
Investors are worried that weak economic reports will push the Federal Reserve to follow last week’s half-percentage-point rate cut with more policy easing, further eroding the dollar’s yield advantage over other currencies, particularly the Euro. Several Wall Street firms have downgraded their outlook on US Gross Domestic Product over the next several quarters.
The EurUsd closed at 1.4074 after earlier hitting a record high 1.4131. The UsdJpy traded at to 114.84, down 0.54%, below its level late on Friday as investors remained wary of piling back into carry trades, which involve using cheaply borrowed Yen to buy higher-yielding currencies and assets.
Analysts say the recent sharp declines in the dollar may provide some investors a short-term buying opportunity. But on a longer term, the focus will remain on interest rates and the dollar’s dwindling yield advantage.
Interest rate futures are pricing in a roughly 66 percent chance of a 25bp Fed rate cut in October, down from 72 percent at Friday’s close. At least one more quarter-point cut has been factored in by year-end on top of any move at the Fed’s next meeting in October.
Investors overlooked criticism of the European Central Bank from a French presidential aide who said euro strength was eroding European competitiveness and business productivity. ECB President Jean-Claude Trichet also brushed off the remarks, saying the central bank’s main task was to ensure price stability.
The Dollar rose against Sterling on Tuesday as a report in a British newspaper stirred concerns over deepening problems in the UK’s financial sector due to the credit crunch. The Independent reported this morning that Britain’s deposit protection scheme holds only �4.4 million ($8.9 million) to protect the country’s bank deposits, far smaller than the $49 billion fund at the U.S. Federal Deposit Insurance Corporation. The news raised worries over the stability of the British financial system after depositors had rushed to withdraw savings from troubled mortgage bank Northern Rock.
Today’s Key Issues (time in GMT):
08.30 UK 2Q Total Business Investment 0.8% vs 0.8% (QoQ)
08.30 UK 2Q Total Business Investment 7.4% vs 7.4% (YoY)
14.00 US Sept Richmond Fed Manufacture Index 5 vs 7
14.00 US Sept Consumer Confidence 104.4 vs 105
14.00 US Aug Existing Home Sales 5.30M vs 5.75M
14.00 US Aug Existing Home Sales -4.6% vs 0.2% (MoM)
20.10 CAD Bank of Canada governor Dodge speaks, Vancouver
21.30 US Fed’s Plosser speaks on the economy, New Jersey
[I]Full Moon holiday in South Korea and Taiwan today, also Hong Kong tomorrow.[/I]
The Risk Today:
EurUsd recent trend is still bullish. Last week break through 1.4000 psychological resistance should pave the way for an extension to .14108 and 1.4291. Initial resistance 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. Sterling hit Monday 2.0314 high before retracing down to 2.0203 at close. Resistance holds 2.0366 high from September 12. A move further this would open the way to 2.3098 early August high. Former 2.0202 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 with recent downtrend after having broken 1.1816 former key support. However, on the uptrend, a recovery beyond 1.1923 and 1.1962 is needed to relieve the actual bear threat. On the downtrend, further slippage below 1.1741 would open the way through 1.1500 psychological support and possibly 1.1484 (2005 March 14 low).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland