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Forex − BoJ is expected to cut rate this week following Fed move

Thu, Dec 18 2008, 11:52 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Dollar dropped against major currencies on Wednesday, hitting its weakest level in more than 13 years versus the Yen, a day after the Federal Reserve cut interest rates to virtually zero. The Euro rallied to its strongest level against the Dollar this last 3 months as the US central bank's massive rate cut further widened the interest rate differential in favor of the euro zone currency.

Lately, in strong volatility the Dollar abruptly reversed its upward trend of the past four months. Fears have risen that the Fed's rate cut further diminished the yield appeal of the US currency, making dollar assets less attractive. It also came under pressure on worries the increase in the supply of money in the financial system would erode the Dollar's value, analysts said.

Yesterday, EurUsd rose 2.42% to 1.4406 after having posted 1.4438 2 ½-month high. UsdJpy fell 1.58% to 87.29, having hit 87.14 the lowest since mid-1995. EurJpy rose 0.79% to 125.74. GbpJpy was 2.05% lower at 135.38. GbpUsd was 0.48% lower at 1.5507 after having hit 1.5744 high. UsdChf dropped 4.12% to 1.0739.

The Fed on Tuesday cut its federal funds rate target to a record low, setting a range of zero to 0.25% compared with the previous level of 1%. That contrasted with the more cautious approach of the European Central Bank, which recently hinted that it may not cut again in January.

The Japanese currency, which has rocketed in recent months, gained almost 7% against the Dollar this month and 16% this quarter. The Yen's rally picked up momentum after the Fed's move brought US interest rates below the Bank of Japan's target for the overnight call rate, now at 0.30%, for the first time in well over a decade. The BoJ starts its two-day monetary policy meeting today. Poll of analysts expect the BoJ to cut rates this week, and most of them see rates falling to 0.1%.

Today's Key Issues (time in GMT):

08:15 CHF October Retail sales 2.9% vs 6.4%
09:00 EUR December Ifo Business climate 84 vs 85.8
09:00 EUR December Ifo current conditions 91.5vs 94.8
09:00 EUR December Ifo expectations 76.6 vs 77.6
09:00 NOK December Reg’d unemployment 1.9% vs 1.8%
09:30 GBP November PSNB £13.5b vs £1.38b
09:30 GBP November PSNCR £11.65b vs -£4.91b
09:30 GBP November Retail sales -0.6% vs -0.1% (mom)
09:30 GBP November Retail sales 1.1% vs 1.9% (yoy)
10:00 EUR October Euro zone Trade -€4.5b vs -€5.6b
13:30 USD weekly Initial claims 558k vs 573k
13:30 CAD November Lead indicators -0.4% vs -0.4%
13:30 CAD October Retail sales ex-autos -0.8% vs 0.8% (mom)
13:30 CAD October Retail sales -1% vs 1.1% (mom)
13:30 CAD October Securities Foreign -C$1b vs –C$0.27b (mom)
15:00 USD November Lead indicators -0.5% vs -0.8%
15:00 USD December Philadelphia Fed Business Index -40 vs -39.3
18:30 USD Fed’s Fisher speaks on the economic crisis, Dallas

The Risk Today:

EurUsd Market rose for the 8th day in a row and traded as high as 1.4438. On the further upside, room is open for 1.4867 23rd October high. A return over 1.5000 will confirm release of the 3-month pressure and may put key resistance 1.6000 into focus. On the downside, 1.3899 and 1.3600, former resistances, hold supports. Further support holds 1.2208 trendline support. Next long-term support holds 1.1640 November 2005 low and therefore 1.0739 September 2003 low.

GbpUsd Market rose as high as 1.5618 yesterday. Further strength may open the way to 1.6075 (38.2% retracement of 1.8669 – 1.4471 decline) and even 1.6570 (50% retracement). Strength may look for 1.6673 30th October high strong resistance. Further resistance holds 1.7816 (50% retracement of 2.1161-1.4471 decline). On the downside, former resistance 1.5462 holds support). Strong supports hold 1.4471 December low ahead of 1.3682 March 2001 low.

UsdJpy UsdJpy was heavily under pressure for the last 5 days trading as low as 87.29 yesterday. This may hold initial support. Further downtrend may open 79.70 April 1995 low. On the upside, strong resistance holds 100 pivot point, but 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 93.91 ahead of 97.43 24th November high.

UsdChf Market traded down to 1.0713 yesterday in 8 days downtrend. Further weakness may open the way down to 1.0692 22nd September low and as well as 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low. Renewed up and over 1.2298, 21st November high, strength may look for 1.2463 strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 – 0.9639 decline). Former support 1.0955 holds minor resistance.

Resistance and Support:

Published on  Thu, Dec 18 2008, 12:01 GMT