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Forex − Dollar rose supported by US stimulus package

Tue, Jan 6 2009, 11:05 GMT
by Peter Rosentreich

ACM - Advanced Currency Markets

Forex News and Events:

The Dollar rose strongly against Euro and Yen on Monday, buoyed by a planned US stimulus package and increased expectations of interest rate cuts by European and British central banks.

Investors welcomed news that US President-elect Barack Obama is seeking as much as $310 billion in tax cuts as part of a proposed stimulus package that could be worth up to $775 billion.

The yen fell to 4-week lows against Dollar amid improved risk appetite, with bargain prices and hopes for a global economic recovery this year prompting stock market gains in Europe and Japan. Euro hit 3-week lows against Dollar with weaker-than-expected inflation data in Euro-zone and tax cuts in Germany seen raising pressure on the European Central Bank to cut interest rates further. Analysts said the Euro's rally in December was too far, too fast given the weak state of the euro zone economy.

Sharp Euro losses have also helped Sterling recover some of its recent losses against the euro zone currency. Last week, EurGbp hit record high and appeared to be headed for parity.

Yesterday, EurUsd dropped 2.3% to 1.3638 after hitting 1.3547, its lowest since mid-December. UsdJpy rose 1.26% to 93.24, its highest since December 8th. GbpUsd rose 1.3% to 1.4717 from earlier 1.4428 low. EurGbp fell sharply by 3.55% to 0.9268. UsdChf jumped 3.49% higher at 1.1085.

Also, Euro weakened after ECB Vice President Lucas Papademos said on Sunday that more rate cuts may be needed to shield the Euro-zone economy from recession. Monday Consumer price numbers add pressure on the ECB to cut rates further when it meets next week to decide on monetary policy in the currency bloc. Markets have largely priced in a 50bp rate cut to 2%. Investors also see the probability of borrowing costs falling more sharply to 1.75%.

Today's Key Issues (time in GMT):

00:00 SEK Market Holiday
07:00 GBP December Nationwide House Price 2.5% vs -0.4% (mom)
07:00 GBP December Nationwide House Price -15.9% vs -13.9% (yoy)
07:45 EUR December Consumer confidence -44 vs -43
09:00 EUR December Euro-zone Markit Services PMI 42.1 vs 42.5
09:00 EUR December Euro-zone Markit Services Composite 38.2 vs 38.9
09:00 GBP December CIPS/Markit Services PMI 39 vs 40.1
10:00 EUR December Euro-zone Inflation 1.8% vs 2.1% (yoy)
13:30 CAD November Producer prices -1% vs 0% (mom)
13:30 CAD November Raw materials prices -8.3% vs -12.5% (mom)
15:00 USD November Durable goods orders revision -1% vs -1%
15:00 USD November Factory orders -2.5% vs -5.1%
15:00 USD December ISM Non mfg PMI 37 vs 37.3
15:00 USD December ISM Non mfg Business act 34 vs 33
15:00 USD November Pending sales -1% vs -0.7%
21:45 NZD November merchandise trade 4.5b vs 4.78b
21:45 NZD November merchandise trade – export 3.7b vs 3.83b
21:45 NZD November Trade Balance month -0.8b vs -0.9b
21:45 NZD November Trade Balance Year -5.5b vs -5.22b

The Risk Today:

EurUsd Market traded as high as 1.4720 in December but reversed most of its gain below 1.4000 early this week. Uptrend remains and may open the way to 1.4867 23rd October high. A return over 1.5000 will clear the last 3-month pressure and may put key resistance 1.6000 into focus. Initial resistance holds 1.4363 last week high. On the downside, 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 reversed most of Cable gains from mid-December and traded below 1.5000. On the downside, strong supports hold 1.4471 December low ahead of 1.3682 March 2001 low. Initial support holds 1.4354 31st December low. Sentiment remains mixed but renewed strength may open the way to 1.6075 (38.2% retracement of 1.8669 – 1.4471 decline) and even 1.6570 (50% retracement). Uptrend may look for 1.6673 30th October high strong resistance. Further resistance holds 1.7816 (50% retracement of 2.1161-1.4471 decline).

UsdJpy UsdJpy broke up the 4-month downtrend upper trendline and hit 93.59 high yesterday. 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 97.43 24th November high. Strong support holds 87.14 17th December low. Renewed downtrend may open 79.70 April 1995 low.

UsdChf Market traded as low as 1.0373 on 29th December in last months downtrend and recovered up to 1.1125 yesterday. Uptrend may open the way through 1.1200 and possible trend up to 1.2298, 21st November high. Over it, 1.2463 holds strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 – 0.9639 decline). Renewed weakness may return 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  Tue, Jan 6 2009, 11:11 GMT