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Euro still under pressure on views that ECB will have to cut interest rates

Tue, Feb 12 2008, 09:45 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

News and Events:

The Yen rose broadly on Monday as investors grew more risk averse while the Euro gave back small gain against the Dollar as the market weighed inflation remarks from monetary policy-makers. The Euro, coming off its worst week against the Dollar in 1-1/2 years, had edged up overnight after European Central Bank governing council member Axel Weber told a German newspaper the central bank had not relaxed its view on inflation. But it pared most of those gains in New York trade as fears of more credit fallout reinforced views that the ECB will have to cut interest rates this year. Yesterday, EurUsd was unchanged at 1.4501, off the overnight high of 1.4577. The euro struggled last week after the ECB left interest rates at 4% and focused its policy statement on growth risks, cutting wording about pre-emptive action on inflation. Weber and ECB President Jean-Claude Trichet have since tried to refocus markets on euro-zone inflation, which recently hit a 14-year high. Analysts said the market was interpreting it all to mean the bank is moving into a neutral policy stance, a prelude to an eventual rate cut. UsdJpy fell 0.45% to 106.83 and EurJpy was down 0.52% at 154.91. The weekend Group of Seven industrialized nations meeting in Tokyo offered little news for Forex markets. Finance leaders' focus on the crumbling US housing market and its impact on world economic conditions and bank lending added to risk aversion on the margins, helping the Yen. The language on currencies was largely a repeat of the previous statement, with the G7 saying exchange rates should reflect economic fundamentals. AudUsd was among the best performing, rising 0.88% to 0.9035 after the central bank warned it would likely need to raise interest rates again to counter inflation. The Reserve Bank of Australia hiked rates to an 11-year peak of 7% last week, and markets now expect another hike in March.

Today's Key Issues (time in GMT):

09:30 GBP January CPI -0.6% vs 0.6% (MoM)
09:30 GBP January CPI 2.3% vs 2.1% (YoY)
09:30 GBP January RPI -0.5% vs 0.6% (MoM)
09:30 GBP January RPI 4.1% vs 4% (YoY)
10:00 EUR January Germany ZEW current conditions 50.8 vs 56.6
10:00 EUR January Germany ZEW economic sentiment -45 vs -41.6
16:05 USD Fed’s Yellen speaks on the economy, San Francisco
19:00 GBP January Monthly Budget Statement $23.5B vs $38.24B
21:45 NZD 4Q Producer Prices Index 1.2% vs 2.3%
22:00 USD ABC/Wash Post Index -33 vs -33
23:30 AUD February Consumer Sentiment -8.3%
23:50 JPY January Corp Goods price 0% vs 0.4% (MoM)
23:50 JPY January Corp Goods price 2.8% vs 2.6% (YoY)
23:50 JPY December Current account -3.6% vs 2.1%
00:01 GBP January RICS House Price Balance -52% vs -49.1%

The Risk Today:

EurUsd Dropped by 2.01% last week at 1.4504 having posted 1.4440 low. Medium term trading range is now 1.4366 – 1.4952. Market traded as low as 1.4940 on Wednesday. Market is turning over 1.4500 pivot support, where below it, market might look down for 1.4280 next support after trendline support holding 1.4311 December low. Initial resistance holds 1.4652 Thursday high.

GbpUsd was under pressure last week returning below 1.9590 (38.2% retracement of 1.7049 – 2.1161 advance). Further pressure below 1.9500 might open the door toward 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Return in uptrend will be only confirmed over 2.0000 key level before 2.0100 resistance. Initial resistance holds 1.9590 former support.

UsdJpy It remains weak below 108, having tested 104.97 low 23rd January and 105.77 low in February. Initial resistance holds 107.89 and strong resistance holds 110.10 mid January double top ahead of 111.92 early January high. Pressure will be relieved over 108. Meanwhile, current trend may look for 106 support and next 104.97 support ahead of 104.20 trendline support.

UsdChf Posted a 2 ½ week high Thursday at 1.1104. Initial resistance holds 1.1123 late January high. Market might look for 1.1130 (38.2% of 1.1603 – 1.0838 decline). Early January double top 1.1191 marks strong resistance. Initial support holds 1.0933 Thursday low, 2 figures away from previous week low 1.0732.

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

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Published on  Tue, Feb 12 2008, 09:53 GMT