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Forex − Dollar rises as Obama win help US economic outlook

Wed, Nov 5 2008, 11:50 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Dollar rose against a basket of major currencies on Wednesday after posting its biggest one-day slide in 13 years the previous day, as Democrat Barack Obama won the US presidential election. Obama captured the White House on Tuesday after an extraordinary two-year campaign, defeating Republican John McCain to make history as the first black US president.

Dollar buying kicked in shortly after media projected a victory by Obama as the outlook for a change in the ruling party helped investors become slightly more hopeful about the outlook for the United States. But in general, Obama's win was in line with market expectations and mostly neutral for the Dollar in the near term, traders said. The Dollar was also helped by news that the Democrats expanded their majorities in both chambers of the US Congress in Tuesday's election to position themselves to quickly act on much of the US president-elect's ambitious agenda.

This morning, EurUsd slid 1.19% to 1.2828. UsdJpy rose 0.82% to 99.80. GbpUsd is up 1.05% at 1.5935 after hitting earlier 1.5603 low. UsdChf is 1.2% lower at 1.1633 after rising up to 1.1802.

On Tuesday, the Dollar dropped posting its biggest one-day slide against the Euro since that currency's 1999 launch, as investors bet that global interest rate cuts and a credit market thaw would revive world growth. Volume was light ahead of American election and traders said it helped exaggerate some of the day's currency moves.

Royal Bank of Australia surprised markets with a 75bp interest rate cut on Tuesday, while the European Central Bank and Bank of England are expected to reduce rates on Thursday.

Analysts said the Euro was benefiting from the Aussie's comeback, with the prospect of further large interest rate cuts from the ECB and BoE seen as stimulant to their respective economies. Yesterday, EurUsd was up 2.97% at 1.2983, off a session peak of 1.3049, but still set for its best one-day rise since its inception nine years ago. GbpUsd rose 1.05% to 1.5935 and the AudUsd added 3.39% to 0.6981. UsdJpy rose 0.82% at 99.79, while EurJpy rose 3.81% at 129.55 in another sign of renewed risk appetite. The low-yielding Yen is also seen as a safe haven and tends to fall as investors grow bolder and seek higher returns elsewhere.

Against the Yen, major currencies dropped to multi-year lows last month as fund managers dumped yen carry trades, in which investors use the low-yielding yen to finance purchases of assets offering higher returns elsewhere, as the global financial crisis rocked markets.

Today's Key Issues (time in GMT):

04:00 USD Obama elected US President
08:10 CHF Swiss National Bank’s Roth speaks, Geneva
08:30 SEK Swedish Riksbank’s Minutes of October 23rd meeting
09:00 EUR October Euro zone Markit Services PMI 46.9 vs 48.4
09:00 EUR October Euro zone Markit Composite PMI 44.6 vs 46.
09:30 GBP October CIPS/Markit Services PMI 44.5 vs 46
09:30 GBP September Industrial output -0.3% vs -0.6% (mom)
09:30 GBP September Industrial output -2.3% vs -2.3% (yoy)
09:30 GBP September Manufacturing output -0.4% vs -0.4% (mom)
09:30 GBP September Manufacturing output -1.7% vs -1.9% (yoy)
10:00 EUR September Euro Zone Retail Sales -0.4% vs 0.3% (mom)
10:00 EUR September Euro Zone Retail Sales -2.3% vs 1.8% (yoy)
13:15 USD October ADP National Employment -100k vs -8k
15:00 USD October ISM Non mfg PMI 47.5 vs 50.2
15:00 USD October ISM Non mfg business Act 50 vs 52.
21:45 NZD Q3 Employment growth -0.6% vs 1.2%
21:45 NZD Q3 Employment rate 4.3% vs 3.9%

The Risk Today:

EurUsd Market dropped as low as 1.2330 last week and sharply rebounded to 1.3298 high last Thursday. This shows actual trading range 1.2330 – 1.3298. On the downside, renewed weakness will open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low. On the upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3769 14th October high.

GbpUsd Market hit 1.5265 low on 24th October and then recovered up to 1.6673 high last week. This holds trading range 1.5265 – 1.6673. Strong support holds 1.5279 Monday 24th October low. Deep following supports are 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 last weeks high ahead of 1.7144 (38.2% retracement of 2.0158 – 1.5265 3-month drop). Further resistance holds 1.7744 (50% retracement).

UsdJpy Market has now recovered up to 99.80 September-October trendline resitstance following two weeks ago drop to 90.91 on Friday 24th October. On the upside, only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 100 pivot point. Staying in the current downtrend might open the way down to 79.70 April 1995 low.

UsdChf Market recovered yesterday to 1.1802 high from Friday 1.1203 low. Further advance may open the way to 1.1895 October 2007 high and strong resistance. On the downside, renewed weakness below 1.1203 Friday low would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.

Resistance and Support:

Published on  Wed, Nov 5 2008, 13:52 GMT