Dollar rallied on Wednesday supported by drop in Oil prices and improved confidence in financial sector
The Dollar rallied to a one-month peak against the Yen and a two-week high against the Euro on Wednesday, supported by a further drop in Oil prices and improved confidence in the US financial sector. The Dollar also continued to benefit from comments from Philadelphia Federal Reserve President Charles Plosser, who said on Tuesday that the US central bank may have to raise interest rates sooner rather than later to combat inflation. Futures markets are pricing a 68% chance against 52% the week before for the Fed to increase benchmark lending rates in September, to 2.25% from current 2%. The Reserve Bank of New Zealand cut the benchmark interest rate by 25bp to 8% and said it expects to cut rates further on expectations the economy will continue to slow.
News and Events:
The Dollar rallied to a one-month peak against the Yen and a two-week high against the Euro on Wednesday, supported by a further drop in Oil prices and improved confidence in the US financial sector.
Oil prices, which are trading more than $20 below this month’s record peak of $147.27, continued their decline on Wednesday following the release of US crude inventory data, giving the greenback a generally bid tone. At the same time, the US House of Representatives prepared to vote on a measure that is expected to help the housing sector recover from its worst downturn since the Great Depression. The White House said President George W. Bush will sign the bill into law.
Yesterday, UsdJpy climbed to 108, its highest level in a month, before easing back to 107.92 up 0.61%. EurUsd dropped 0.6% at 1.5685. UsdChf rose 0.77% at 1.0386 after hitting 1-month 1.0402 high and GbpUsd rose 0.31% at 1.9973.
The Dollar also continued to benefit from comments from Philadelphia Federal Reserve President Charles Plosser, who said on Tuesday that the US central bank may have to raise interest rates sooner rather than later to combat inflation. Futures markets are pricing a 68% chance against 52% the week before for the Fed to increase benchmark lending rates in September, to 2.25% from current 2%. Analysts said more data on Thursday – along with oil price and equity developments – would also be key in determining whether the slide in EurUsd lasts or soon gives way to another try beyond 1.6000.
The New Zealand Dollar fell on Wednesday after the Reserve Bank of New Zealand cut the benchmark interest rate by 25bp to 8% and said it expects to cut rates further on expectations the economy will continue to slow. NzdUsd dropped 1.96% at 0.7443. The move by the RBNZ was the first reduction in five years. The bank had kept the benchmark interest rate unchanged at 8.25% since July last year.
Today, focus will be on US existing home sales, German Ifo business sentiment survey and euro zone flash PMI.
Today’s Key Issues (time in GMT):
07:00 EUR Q2 Spain Unemployment Survey 10.4% vs 9.6%
07:30 DKK July Consumer Confidence -9.7 vs -6.6
07:30 SEK June PPI 0.5% vs 0.1% (MoM)
07:30 SEK June PPI 3% vs 2.9% (YoY)
07:30 SEK June Unemployment 8.1% vs 5.9%
08:00 EUR July Germany Ifo business climate 97.5 vs 101.3
08:00 EUR July Germany Ifo current conditions 105.7 vs 108.3
08:00 EUR July Germany Ifo expectations 90 vs 94.7
08:30 GBP June Retail Sales -2.5% vs 3.5% (MoM)
08:30 GBP June Retail Sales 4.4% vs 8.1% (YoY)
12:30 USD weekly Initial claims 376k vs 366k
14:00 USD June Existing home sales 4930k vs 4990k
14:00 USD Fed�s Geithner and SEC�s Cox testify on regulatory restructuring at House Financial Services Committee.
The Risk Today:
EurUsd: Market broke yesterday 1.5800 support which lightly undermine the current 3-month uptrend. Further weakness might play in 1.5400 � 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low. Key initial resistance holds 1.6000. A break there would open the way to Trendline resistance 1.6200.
GbpUsd: Cable is set in short term 1.9900 � 2.0100 trading range. It hit 2.0158 high last week. Key level holds again 2.0100. On the downside, only a return below 1.9649 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Initial support holds 1.9649 July 7th low. Strong support holds 1.9363 20th February and 14th May low.
UsdJpy: Yesterday recovery push the market near 108. Friday strong Dollar rebound put focus on mid-June 108.59 resistance and 110.10 strong resistance (Trendline). Further advance would open the way toward 111.92 early January high. On the downside, a return below 105 may open the way toward 102.73 support and 100 pivot point.
UsdChf: Market hit 1.0013 last week. Further weakness below 1.0000 may open the way toward 0.9637 17th March low. Recent strength pushed over 1.0200 which reopen the 1.0200 � 1.0600 consolidation range. Initial resistance holds 1.0402 yesterday high.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland