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Forex − Central Banks are ready to cut rates

Wed, Oct 8 2008, 09:50 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Dollar fell on Tuesday as steps by the Federal Reserve to calm chaotic financial markets and a signal by Chairman Ben Bernanke that the central bank was ready to cut rates eroded some of its safe-haven bid.

Moves by the Fed to create a facility to buy commercial paper caused investors to sell the Yen in favor of some European currencies that had been hammered on worries about the health of the global economy and lack of a coordinated response to the financial crisis from Europe.

Bernanke talked about further monetary easing, highlighting the fact that recent economic data and financial developments showed the outlook for growth has worsened. Also, ECB chief Jean-Claude Trichet last week signaled the central bank was ready to start cutting rates.

Analysts said investors were also unnerved by the continued decline of stocks on Wall Street despite measures by the Fed to free up seized short-term lending markets. US stocks plunged in their 5th straight declining session as fears mounted that the spiraling credit crisis would drag the economy into a deep recession. The slide capped the biggest 5-day point loss ever for the Dow Jones Industrial, which has lost about 1,400 points over the past 5 sessions or nearly 13%.

Analysts said the Dollar still remained a safe-haven, but cautioned that it could fall further against the Euro as its recent rally was seen as slightly overdone. They added that the ongoing credit crisis has started to impact the currency.

Yesterday, EurUsd rose as high as 1.3743, rebounding from a 13-month low 1.3443 hit on Monday. It was last up 0.38% at 1.3571. EurJpy rose 0.13% to 137.48 after posting 141.08 high. UsdJpy dropped 0.24% to 101.31 having hit 103.29 intraday high. UsdChf was 0.51% lower at 1.1415. GbpUsd rose 0.19% to 1.7464 having hit 1.7318 2 ½-year low.

Today's Key Issues (time in GMT):

06:45 EUR August French Trade Balance -5.379b vs -4.834b
07:00 GBP September Halifax house prices -1.8% vs -1.8% (mom)
07:00 GBP September Halifax house prices -12.5% vs -10.9%
09:00 EUR Q2 Euro-zone GDP revised -0.2% vs 0.7% (qoq)
09:00 EUR Q2 Euro-zone GDP revised 1.4% vs 2.1% (yoy)
11:45 USD Fed’s Plosser speaks on Fed policies, New York
12:15 CAD September House starts 203k vs 211k
14:00 USD August Pending sales -1.8% vs -3.2%
23:50 JPY Machinery orders -3.5% vs -3.9%

The Risk Today:

EurUsd Early week strong pressure hit strong support 1.3666 December 2004 high and broke below 1.3500. Further weakness will focus on 1.3056 support (retracement of 0.8231 – 1.6039 advance). Initial support holds 1.3443 Monday low. On the upside, only a return over 1.4000 and 1.5000 will release actual pressure and may put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200. Initial resistance holds 1.4002 former trendline support.

GbpUsd Friday 25th September 1.8669 high marked the end of the mid-September uptrend. Early Tuesday weak sentiment pushed markets as low as 1.7318, now initial support, before reversing just over 1.7422 (50% retracement of 1.3682 – 2.1161 advance). 11th September 1.7447 low holds support. Further downtrend may test strong support 1.7251 3rd April low. On the upside, initial resistance holds 1.8669 Friday 25th September high ahead of 1.8795 21st August high strong resistance.

UsdJpy Further pressure hit 101.08 low yesterday and 99.60 low this morning. This renewed pressure is testing level 100 pivot point. This downtrend may search for 95.75 March low. On the upside, recovery over 105 pivot point will put focus again on 108 and 110.67 15th August high.

UsdChf Market posted 1.1489 high on Monday, clearing 1.1418 11th September high. Further advance may open the way to 1.1596 December high and strong resistance. On the downside, only weakness below 1.0692, 22nd September low, would undermine the current trend and open the way down to 1.0500 and 1.0375. Such a move may also test the 1.0013 15th July low in front of 0.9637 17th March low.

Resistance and Support:

Published on  Wed, Oct 8 2008, 09:54 GMT