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ECB focus on inflation as Oil surge to fresh record high $ 122.31

Wed, May 7 2008, 09:16 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

News and Events:

The Dollar edged lower against Euro and Yen on Tuesday, its second straight daily decline, after a bigger-than-expected quarterly loss at Fannie Mae suggested more financial market turmoil ahead. Fannie Mae posted a $2.19B loss in the first quarter as the housing market took a turn for the worse. Analysts said that was worrisome for the Dollar because it suggested problems in the troubled US housing sector have yet to work their way through the economy. Should those problems lead to more job losses and slower consumer spending, the Federal Reserve may be forced to cut interest rates again, dulling the dollar's appeal to global investors.

EurUsd was fairly unchanged at 1.5519. The Euro drew support from euro zone service sector data that was slightly stronger than expected. UsdJpy edged down 0.11% to 104.80. UsdChf was unchanged at 1.0525. GbpUsd went 0.12% lower at 1.9714 after hitting 1.9636 intraday low. UsdCad fell 0.93% to 1.0021. Traders said oil's surge to a fresh record above $122 a barrel was boosting the Canadian currency.

Record high oil prices were seen reinforcing the European Central Bank's focus on inflation, which bank President Jean-Claude Trichet on Monday termed a "significant" risk. This underlined expectations that the ECB would keep rates at 4% when it meets on Thursday. Analysts expected the ECB to stick with its hawkish line on inflation in Trichet's post-meeting briefing on Thursday, despite a recent run of soft data.

AudUsd rose 0.37% to 0.9496, having retreated from a two-week high after the Reserve Bank of Australia held its key cash rate at a 12-year high of 7.25%.

Today's Key Issues (time in GMT):

08:30 GBP March Industrial output -0.1% vs 0.3% (MoM)
08:30 GBP March Industrial output 0.8% vs 1.3% (YoY)
08:30 GBP March Manufacturing Production 0.0% vs 0.4% (MoM)
08:30 GBP March Manufacturing Production 1.2% vs 1.9% (YoY)
09:00 EUR March Euro-zone Retail Sales 0.2% vs -0.5% (MoM)
09:00 EUR March Euro-zone Retail Sales -0.6% vs -0.2% (YoY)
12:30 USD Q1 Non-farm Productivity 1.5% vs 1.9%
12:45 USD Fed’s Kroszner speaks on foreclosures, Cincinnati
16:00 USD March pending Home Sales -1% vs -1.9%
16:00 USD Treasury’s Paulson speaks on the US and Latin America, Washington
19:00 USD March US Consumer credit $6B vs $5.2B
22:45 NZD Unemployment rate 3.5% vs 3.4%

The Risk Today:

EurUsd Euro has been weaker for the previous two weeks and recently broke 1.5528 former support. Medium term trading range is still set between 1.5400 – 1.5800. Psychological 1.5000 key level marks strong support before 1.4500 pivot point. Pivot point hold 1.6000 resistance ahead of key resistance 1.6200 market target. Initial resistance hold 1.5528 former support.

GbpUsd Cable is trading below 1.9800 consolidation level following Friday 1.9705 low. Further pressure may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Renewed strength over 1.9800 may reopen the way toward 2.0000 psychological level. Actual trading range is 1.9600 – 2.0000.

UsdJpy Recent 1 ½-month uptrend open the way over 105 on Friday. This could bring further advance till 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Profit taking or return below 105 might lead the way down to 100 – 103 consolidation trading range. Minor support holds 102.95 early April high.

UsdChf Market broke up 1.0500 last Friday, hitting 1.0609 two-month high. A return below 1.0500 may reopen the way down 1.0200 and toward 0.9639 17th March low. Current uptrend looks set up over 1.0200 former resistance. Early January double top 1.1191 marks strong resistance.

Resistance and Support:

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Published on  Wed, May 7 2008, 09:20 GMT