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European and US summary

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Euro Rallied on ECB Inflation Focus

Fri, Sep 7 2007, 00:48 GMT
by Yan Xu

Forexnews.com

The euro rallied across the board after ECB Chairman Trichet emphasized stable prices are more important during times of financial uncertainty.

As expected, the European Central Bank left its benchmark rates on hold at 4.00% today. Trichet stated in the press conference that financial market volatility and reappraisal of risk over recent weeks have led to an increase in uncertainty. He said that inflation risks are still on the upside. When asked why he dropped the word “strong vigilance” this time, he responded that he only say what he wants to say.

Also, the Bank of England left interest rates unchanged at 5.75% as expected. In a post-meeting statement, the BOE said it was too soon to tell how far the disruption in financial markets would impair the availability of credit to companies and households.

Both of the centrals banks need some time to assess how much impact the credit crunch will have on the economy growth and how long it will last. The market has not rule out the possibility that the ECB and BOE may raise interest rates by the year-end.

The market is still upset about the credit problem, which keeps the dollar under pressure. A report showed commercial paper outstanding fell 54.1 billion in the week ending yesterday.

Earlier in the session, the dollar was slightly boosted by a run of better-than-expected US data. US productivity came out at 2.6% in the second quarter, up from a 1.8% reading in the previous quarter and beating the estimate of 2.4%. US labor cost fell to 1.4%, slightly below the expectation of 1.6%. Weekly jobless claims fell 16k to 318k, better than the estimate of 330k. Non-manufacturing ISM index remained at 55.8 in August, below a 54.8 estimate.

The market will focus on August employment report from US Labor Department tomorrow. Non-farm payrolls are seen up from 92k to 110k and unemployment rate is expected to remain at 4.6%.

EURUSD will face interim resistance at 1.37, followed by 1.3720 and 1.3750. Additional ceilings will emerge at 1.3780, backed by 1.38. Support starts at 1.3670, backed by 1.3650, 1.3630 and 1.36. Subsequent floors are eyed at 1.3570.

GBPUSD encounters interim resistance at 2.0270, backed by 2.03 and 2.0330. Subsequent ceilings will emerge at 2.0350, followed by 2.0380 and 2.04. On the downside, support begins at 2.0220, followed by 2.02 and 2.0170. Additional floors are eyed at 2.0140, backed by 2.01 and 2.0080.

USDJPY encounters interim resistance at 115.50, backed by 115.80 and 116. Subsequent ceilings will emerge at 116.30, followed by 116.50 and 117. On the downside, support begins at 115 and 114.80, followed by 114.50. Additional floors are eyed at 114.30, backed by 114 and 113.80.

Published on  Fri, Sep 7 2007, 00:45 GMT