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Euro reversed gains after less hawkish interest rate remarks from ECB officials

Thu, Apr 24 2008, 09:51 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

News and Events:

The Euro made its biggest drop against the Dollar in the past three weekson Wednesday as soft economic data and comment from Europeanpolicy-makers indicated the weaker US currency is hurting euro zone economic growth.

A manufacturing activity indicator, the  Euro zone PMI, dropped to analmost three-year low in April. Another report showed Germanmanufacturing activity also declined. Demand for the European currencyslid further after comments by a member of European Central BankGoverning Council, Christian Noyer, put down speculation of furtherinterest rate increases by the bank. In addition, Jean-Claude Juncker,the chairman of the euro zone finance ministers, said the Euro'sexchange rate is now excessively volatile. 

Yesterday atclose, EurUsd was down 0.59% at 1.5881 , after hitting intraday 1.5999high. It traded at a record 1.6019 high on Tuesday, the highest levelsince its inception in 1999. UsdJpy was up 0.54% at 103.48. GbpUsddropped 0.85% to 1.9791. UsdChf rose 0.62% at 1.6133 after hitting 1.6167 high.

A slide in British mortgage approvals to a record low in March underlinedserious weakness in the housing market and suggested the Bank ofEngland may continue cutting rates. The data wiped out initial sterlinggains made on BoE minutes showing there was dissent within the centralbank over its decision to cut interest rates by 25bp to 5% this month.

The ECB is expected to keep its key interest rate on hold at 4%, while theUS Federal Reserve is expected to lower its benchmark from 2.25% laterthis month. The Euro’s record high on Tuesday was boosted by hawkishremarks from ECB officials, including Noyer's comments in an interviewwith French radio network RTL that the central bank will do what isneeded to being inflation back to target. But Noyer later said marketshad misinterpreted his remarks as a hint on the direction in whichinterest rates might move, The Wall Street Journal reported in itsonline edition.

Today's Key Issues (time in GMT):

07:30 SEK March PPI -0.1% vs 0.6% (MoM)
07:30 SEK March PPI 3.1% vs 4.2% (YoY)
08:00 EUR April German Ifo business climate 104.3 vs 104.8
08:00 EUR April German Ifo current conditions 111 vs 111.5
08:00 EUR April German Ifo expectations 98 vs 98.4
08:00 EUR February Euro-zone Current account NSA €-19.1B previously
08:00 EUR February Euro-zone Current account SA €-10.6B previously
08:00 EUR February Euro-zone Net investment flows €22.1B previously
08:30 GBP March Retail Sales -0.3% vs 1% (MoM)
08:30 GBP March Retail Sales 4.3% vs 5.5% (YoY)
08:30 GBP April CBI trends - orders 4 vs 7
12:30 USD March Durable Goods ex-defense -0.1% vs -1.5%
12:30 USD March Durable Goods ex-transport 0.4% vs -2.4%
12:30 USD March Durable Goods orders 0% vs -1.1%
12:30 USD weekly Initial claims 375k vs 372k
12:30 USD March Non-def capital good ex-aircraft 0% vs -2.4%
14:00 USD March New Home sales previously -1.8%
15:00 USD April KC Fed Manufacturing previously -5
23:30 JPY March Japan CPI core nationwide 1.2% vs 1%
23:30 JPY March Japan CPI overall nationwide previously 0.6%
23:30 JPY April Japan CPI core Tokyo 0.5% vs 0.6%

The Risk Today:

EurUsd Euro reversed part of early week gains going away from Tuesday 1.6019 all time high. Medium term trading range is still set between 1.5800 – 1.6200. Strong support hold 1.5528 (23.6% retracement of 1.4311-1.5904 advance). Psychological 1.5000 level marks strong key support before 1.4500 pivot point. Key resistance holds 1.6200 market target. Initial support hold 1.5511 April 3rd low. Minor resistance holds 1.6000 key level.

GbpUsd Cable has been consolidating just over 1.9800. Further strength may open the way toward 2.0000 psychological level. Confirmation over 2.0100 major pivot point would set Cable free for more uptrend. Actual trading range is 1.9800 – 2.0000. Renewed pressure below 1.9800 may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance).

UsdJpy It confimed strenght over 102. Further advance may open the way up to 105, then 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Fail to overtop 105 will bring back weakness in 100 – 103 consolidation trading range. Minor support holds 102.95 early April high.

UsdChf Market still remains weak below 1.0200. It is currently looking for direction with an ongoing triangle chart figure. Below 1.0000; strong support holds 0.9639 17th March low. Over 1.0000: uptrend would only return with a confirmation over 1.0200 resistances. Early January double top 1.1191 marks strong resistance.
 

Resistance and Support:

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Published on  Thu, Apr 24 2008, 11:31 GMT