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Forex − ECB's Weber reopens speculation about interest rate increase despite FOMC suggestion for a Federal Reserve rate hike

Thu, Aug 28 2008, 10:07 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Dollar tumbled from six-month peaks against the Euro on Wednesday, as comments by European Central Bank official reopened speculation about an interest rate increase in the euro zone to fight persistent inflation pressure. It also fell against a basket of six major currencies, retreating from this year's highs.

Still, investors remain wary of recent troubles in the US financial system as mortgage finance companies Fannie Mae and Freddie Mac moved back into the spotlight, leaving the Dollar vulnerable in the near term.

Wednesday comments by ECB Weber fueled the Dollar's freefall. Weber told News agencies that any talk about lower interest rates in the euro zone was premature. He also gave the impression that if the euro zone economy improves toward the end of the year, there might even be scope for tightening.

Yesterday, EurUsd was up 0.68% at 1.4747, rallying from six-month lows at 1.4571 hit on Tuesday. UsdJpy was little changed down 0.15% at 109.41. GbpUsd was down 0.13% at 1.8369, after touching a two-year low at 1.8286. It has dropped almost 8% this quarter. UsdChf dropped 0.4% to 1.0957 reversing from previous day 1.1087 peak.

A batch of weak euro zone economic data this month had fueled expectations that the ECB's next move would be to cut rates, contributing to an 8% fall in the EurUsd since its peak in July. However, economists expect the Federal Reserve to raise rates, although minutes of FOMC last meeting suggested that weak financial conditions and slow growth could prevent such a move. But the Dollar might be supported by a deteriorating global economy even as the Fed seems likely to keep rates on hold in the coming months. Central banks in the euro zone, Britain and Australia are expected to lower rates at some stage in order to protect economies from recession.

Today's Key Issues (time in GMT):

06:00 GBP August Nationwide House Price -1.9% vs -1.7% (mom)
06:00 GBP August Nationwide House Price -10.5% vs -8.1% (yoy)
07:15 CHF Q2 Non-farm payrolls 3924k vs 3900k
07:30 DKK July Unemployment 1.6% vs 1.6%
07:30 SEK July Retail sales 1.8% vs -0.5% (mom)
07:30 SEK July Retail sales 1.3% vs 3.3% (yoy)
08:00 EUR August Unemployment rate 7.8% vs 7.8%
08:00 EUR July Euro zone Money Private loans 9.5% vs 9.8%
08:00 EUR July Euro zone Money M3 annual growth 9.1% vs 9.5%
10:00 GBP August CBI distributive trades -30 vs -36
12:30 USD Core PCE prices 2.1% vs 2.1%
12:30 USD Corporate Profits Adv 0.7% vs 1.1%
12:30 USD GDP deflator preliminary 1.1% vs 1.1%
12:30 USD GDP preliminary 2.7% vs 1.9%
12:30 USD GDP sales preliminary 4.2% vs 3.9%
12:30 USD Initial claims 428k vs 432k
12:30 USD Q2 PCE prices preliminary 4.2% vs 4.2%
12:30 CAD Q2 Current account C$8b vs C$5.56b
23:30 JPY July All households spending -1.8% vs -1.8%
23:30 JPY July CPI core nationwide 2.3% vs 1.9%
23:30 JPY August CPI core Tokyo 1.7% vs 1.6%
23:30 JPY July Jobs/applicants ratio 0.9% vs 0.91%
23:30 JPY July Unemployment rate 4.1% vs 4.1%
23:30 JPY July Industrial output prelim -0.5% vs -2.2%
23:30 JPY July Retail sales 1.3% vs 0.3%

The Risk Today:

EurUsd Market dropped as low as 1.4571 on Tuesday, new initial support. Further weakness will put the focus on strong support 1.4366 22nd January low. On the upside, only a return over 1.5000 and 1.5500 will release actual pressure and put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200.

GbpUsd Cable hit 1.8286 yesterday low, initial support. On the downside, further weakness would open the way down to 1.8091 June 2006 low. On the upside, initial resistance holds 1.8795 last week high. Former support 1.9363 holds also strong resistance. Key level holds 2.0100 resistance.

UsdJpy Last 6-weeks recovery pushed the market up to 110.67 high two weeks ago. Further advance would open the way toward 111.92 early January high. On the downside, a return below 108.59 former resistance and 108.14 last week low will undermine the current advance. Profit taking might bring back down to 105 level and may open the way toward 102.73 support and 100 pivot point. Initial support holds 108.14 Thursday low.

UsdChf Dollar rose higher against Chf and hit 1.1087 6-months on Monday. Initial resistance holds 1.1107 13th February high. Strong resistance holds 1.1593 December 2007 high. On the downside, initial support holds 1.0863. Only renewed weakness below 1.0500 and 1.0375 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.

Resistance and Support:

Published on  Thu, Aug 28 2008, 10:12 GMT