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Daily Analysis

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Dollar rebounded from a two−year low versus the euro on Fed outlook

Fri, Mar 23 2007, 02:40 GMT
by Sarah Vladimirsky

Finotec Group Inc.

Main news:

• Sterling advanced as U.K. retail sales rose unexpectedly in February
• Crude oil climbed as declining U.S. gasoline drew support

Market Trend

Forex Outlook:

The dollar rebounded from a two-year low against the euro on Thursday, erasing most of its losses the previous day, on the view that the Federal Reserve may hold interest rates steady for some time. Recent worries about the health of the U.S. economy, including soft manufacturing data and rising defaults in home loans to borrowers with impaired credit, have weighed on the dollar. The dollar also got a lift from a report showing that number of people filing new claims for jobless benefits in the U.S. unexpectedly fell last week to its lowest in six weeks, boosting the view that the labor market is healthy. The dollar rose to $1.3334 per euro from $1.3411 earlier, the weakest since March 2005, and from $1.3385 on Wednesday. The 0.4 percent increase is the biggest gain for the dollar since 5 March, almost offsetting a 0.5 percent drop on Wednesday following the Fed statement.

The British pound gained against majors after a U.K. government report showed retail sales rebounded more than expected last month, adding to speculation the Bank of England will keep raising interest rates from 5.25 percent. Sterling gained the most in two months versus the euro this week after a separate report showed consumer prices unexpectedly quickened last month, holding above the central bank's 2 percent limit. 'The BOE will hike again, possibly in May', said a currency strategist at Bank of America. 'Sterling should remain well supported in this environment.' Against the euro, the pound was at 67.73 pence from 68.02 pence late on Wednesday. Against the dollar, the pound hit a fresh six-week peak of $1.9728.

As for today, investors will be looking ahead to a report on U.S. existing home sales. The forecast by economists has sales falling to 6.31 million units in February from 6.46 million the month earlier. The report is expected to draw fundamentalists back to the struggling housing sector. So far this week, the housing numbers have been relatively mixed with a tangible downward bias.

Gold: Gold prices rallied for the sixth day, rose to a three-week high of $667.60 an ounce on Thursday, driven by a rally in oil and renewed metals buying after the Federal Reserve distanced itself from future rate hikes. 'The drivers for gold look set to support firm prices over the year ahead. In the near future, the Indian wedding season starting in April and the festival of Akshaya Tritiya could bring about significant physical demand,' said senior metals analyst at Numis Securities. India is the world's largest consumer of gold and analysts estimate India accounts for about 18 percent of global demand.

Crude Oil: Crude oil jumped more than $2 on Thursday as a fall in U.S. gasoline stocks fueled concerns of tight supplies ahead of the summer driving season. Refinery snags, early maintenance and robust demand growth in the U.S. have drained gasoline stocks to 7 percent below early February levels, with inventories off 3.4 million barrels last week. U.S. crude has traded between $58 and $62 a barrel since early February, a range considered acceptable by OPEC.

Pool Position

Economic Calendar

EUR/USD Daily Technical Reports

Spot Price: 1.3332

Technical Analysis:

Overbought daily studies are creating a drag on prices in the wake of the breakout beyond the 1.3365 peak from Dec. Weekly and monthly charts are also fairly extended. Long was stopped below the 16 Mar high and hourly retracement support near 1.3340. Oversold hourlies are trying to bottom. Next key support is at 1.3275.

USD/JPY Daily Technical Reports

Spot Price: 118.09

Technical Analysis:

Prices rallied out of Tuesday’s 116.95 to 118.00 range but have been rebuffed at 118.30 thus far. We will buy a bounce out of 118, which may now act as support. Otherwise we will wait for a breakout of 118.30 to buy. Hourlies are overbought, so we prefer to buy at a discount if at all possible.

GBP/USD Daily Technical Reports

Spot Price: 1.9644

Technical Analysis:

Long trade stopped out after falling back overnight when prices topped out ahead of the 7 and 8 Feb highs near 1.9730-35. Support at 1.9660, which is also a 38.2% of the 1.9555/1.9725 move, now removed. 1.9555 is the next decent support.

USD/CHF Daily Technical Reports

Spot Price: 1.2144

Technical Analysis:

Short trade was stopped out. Prices rallied after an hourly oversold piercing of retracement support at 1.2085 could only produce a low of 1.2077 before rebounding. Eying minor hourly uptrend at 1.2110 as initial support. Key resistance is at 1.2235.

Published on  Fri, Mar 23 2007, 02:46 GMT