A surprise first-quarter loss at Wachovia Corp, the fourth-largest US bank, suggested more credit market turmoil ahead, prompting traders to sell Dollars, mostly against the Euro and Sterling. That helped wipe out Dollar gains seen after finance officials from the G7 developed countries on Friday expressed concern about sharp currency fluctuations. In addition to Wachovia, Merrill Lynch & Co Inc and Citigroup Inc are due to report first-quarter results later in the week, and analysts say both banks may announce billions of dollars in write-downs. The Fed has cut the benchmark interest rate by 300 basis points at 2.25% since credit turmoil began in late August and is likely to reduce it again when it meets later this month. The European Central Bank, meanwhile, has held rates at 4% for more than a year, and ECB Governing Council member Yves Mersch said Monday there is no room for rate cuts this year.
News and Events:
The Dollar was little changed on Monday as more banking sector stress added to worries about the US economy, overshadowing a Group of Seven warning on the threat sharp exchange rate moves pose to financial stability.
A surprise first-quarter loss at Wachovia Corp, the fourth-largest US bank, suggested more credit market turmoil ahead, prompting traders to sell Dollars, mostly against the Euro and Sterling. That helped wipe out Dollar gains seen after finance officials from the G7 developed countries on Friday expressed concern about sharp currency fluctuations. The Dollar had rallied briefly overnight on the view that G7 countries may start buying the Dollar to slow its decline. But, on Monday, investors were betting the G7 would not take action soon, especially with the Federal Reserve likely to cut interest rates further to support a US economy that may be already be in recession.
Yesterday, EurUsd was trading at 1.5823, near its closing level on Friday. It fell as low as 1.5671 after the G7 statement but also traded up to 1.5886, not far from last week all-time high 1.5913. GbpUsd rose 0.12% to 1.9728 after trading as high of 1.9894 intraday. UsdJpy was down 0.18% to 101.13 after earlier falling to 100.31 following news of Wachovia’s losses.
The Fed has cut the benchmark interest rate by 300 basis points at 2.25% since credit turmoil began in late August and is likely to reduce it again when it meets later this month. The European Central Bank, meanwhile, has held rates at 4% for more than a year, and comments from policy-makers on Monday clearly indicated the bank’s lack of interest in cutting rates, adding additional support to the Euro. ECB Governing Council member Yves Mersch said Monday there is no room for rate cuts this year. Any official attempt to weaken the Euro and boost the Dollar would run up against the respective monetary policies of the two central banks, limiting the impact of intervention.
In addition to Wachovia, Merrill Lynch & Co Inc and Citigroup Inc are due to report first-quarter results later in the week, and analysts say both banks may announce billions of dollars in write-downs. Analysts said that FX market participant are likely to push the Euro to a new record peak over 1.6000, particularly ahead of the Fed’s April 29 meeting.
Today’s Key Issues (time in GMT):
08:00 NOK March Trade Balance previous 36.1B
08:30 GBP March CPI 0.6% vs 0.7% (MoM)
08:30 GBP March CPI 2.6% vs 2.5% (MoM)
08:30 GBP March RPI 0.5% vs 0.8% (MoM)
08:30 GBP March RPI 3.9% vs 4.1% (MoM)
09:00 EUR April ZEW current conditions 32.5 vs 32.1
09:00 EUR April ZEW economic sentiment -29 vs -32
12:30 USD April NY Fed manufacturing -17.5 vs -22.23
12:30 USD March Producer Price 0.6% vs 0.3% (MoM)
12:30 USD March Producer Price core 0.2% vs 0.5% (MoM)
13:00 USD February Net L-T flows, ex-swaps 56.5B vs 62B
17:00 USD April NAHB Housing market 20 vs 20
21:00 USD weekly ABC/Wash Post Index -34 vs -34
The Risk Today:
EurUsd: Euro posted a new all time high at 1.5913 last week. Medium term trading range is set between 1.5400 � 1.6000. Strong support hold 1.5528 (23.6% retracement of 1.4311-1.5904 advance). Psychological 1.5000 level marks strong key support before 1.4500 pivot point. Initial resistance hold 1.6000 key level. Initial support hold 1.5511 April 3rd low.
GbpUsd: Cable stays below 1.9800 after last week drop. It looks still under pressure after BoE cut rate by 0.25bp to 5% last week. Actual trading range is 1.9600 � 1.9800. Market needs a return over psychological 2.0000 and 2.0100 major pivot points to undermine current downtrend. Further pressure may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance).
UsdJpy: It looks still under pressure. A return below 100 pivot point would undermine the mid-March uptrend started on 95.74 March 17th low. 100 level marks pivot point. Bottom support holds 95. On the Upside, confirmation over 100 may open the way up to 105, then 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Strong support holds 95.74 last month low.
UsdChf: Market still remains weak below 1.0200. It is currently looking for direction with a going on triangle chart figure. Below 1.0000; strong support holds 0.9639 17th March low. Over 1.0000: uptrend would only return with a confirmation over 1.0200 resistances. Early January double top 1.1191 marks strong resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland