As the US growth forecast was cut yesterday, the market considers the possibility of a rate cut as the US economy cools off. Today the most important was the BoE minutes, but otherwise data was light.
MAJOR HEADLINES – PREVIOUS SESSION
USD
The US currency fell against all of the majors on growth speculation. 2007 growth in the US will slow compared to this year, especially due to the weakening of the housing market. In the semi- annual forecast, the Council of Economic Advisers said that Gross domestic product will increase 2.9 percent next year, slower than the 3.6 percent forecast in June. This sent the USDJPY close to the lowest in a month, which also occured as the JPY was supported by comments by the Jean-Claude Juncker - the Prime Minister of Luxembourg - that the recent sell-off in JPY had been "too rough."
UK
Today the BoE minutes was released, revealing a 7-2 vote for a rate hike. The immediate reaction for the pound was to drop as expectations were a 8-1 vote, but after a lower rejection it consolidated a little higher. We believe short EURGBP could be a good play as a reevaluation of the GBP rate outlook after the seel-off in GBP in the afteramath of the 25bphike at the 9th. of November.
Later today we have the final November figures for the US U. of Michigan confidence where the market expects a small increase to 93.3 from 92.3 prior. If we see any surprise to the downside this should add to further USD-weakness.
From yesterday:
JPY
The BoJ minutes was not very interesting as we expected. According to the BoJ, the economy is "likely to expand moderately'' and rateswill be "gradually'' pushed higher, said the minutes, released today. The yen has fallen against 15 of the 16 most-active currencies tracked by Bloomberg since the central bank lifted borrowing costs for the first time in almost six years on July 14, as investors cut bets on a second increase this year. BoJ Deputy Governor Mutu said that the timing of the next rate hike is completely open, leaving room for a hike in December as well as next year. We're still expecting to see JPY weakness againt the other major currencies - EURJPY made new highs yesterday at 151.67 and we expect the new base will be at 150.75 as written in the orderbook below. Tonight the Japanese merchandise trade balance will be released as well as the activity index. The markets as well as our expectations point towards lower figures in both, which could add further pressure on the yen.
FX Orderbook
Euro/US Dollar
EURUSD (1.2894 @ 13:24 GMT)
Support:
1. 1.2460 daily base which coincides with 1.2465 38% retracement
2. 1.2320 double top form march 2006
3. 1.2260 bull trend line from March 2006
4. 1.1635 38% retracement (0.8350-1.3667), also low from 2005.
Resistance:
1. 1.2940 old top from August 2006.
2. 1.2980 long term inverse head-and-shoulder target.
3. 1.3175 upper bull trend channel from March 2006.
Resist.
1.2945
1.2889
1.2866
1.2894
1.2810
1.2776
1.2719
Support
British Pound/US Dollar
GBPUSD (1.9114 @ 13:24 GMT)
Support:
1. 1.8520 lower end of the bear channel from early August 2006.
2. 1.8500 daily base support.
3. 1.8325 wave high from March 2005.
4. 1.8090 wave support from July 2006.
5. 1.7330 long term bull trend support from 2001.
Resistance:
1. 1.9145 Old top from August.
2. 1.9215 old top from April 2005.
3. 1.9325 wave high from March 2005.
4. 1.9550 highs from december 2004.
Resist.
1.9073
1.9029
1.9009
1.9114
1.8965
1.8941
1.8897
Support
US Dollar/Japanese Yen
USDJPY (116.89 @ 13:24 GMT)
Support:
1. 116.50 wave low from late October.
2. 115.55 wave low from April (key level as it would take our weeky lower high/higher high, which would confirm accelerated downside)
3. 113.35 weekly base support.
4. 109.00 key support form confirmation of a monthly downward trend.
Resistance:
1. 119.20 choppy range base from early October.
2. 119.90 old top from mid-October.
3. 121.40 old top from December 2005.
4. 1250.00 50% retracement (form 147.63-101.67).
Resist.
119.01
118.49
118.20
116.89
117.68
117.45
116.93
Support
