Forex - Dollar reversed gains early week gains after weaker ADP report

Forex News and Events:

The Dollar turned lower on Wednesday, reversing sharp gains against the Euro and Yen seen earlier this week, as steep job losses in the private sector renewing fears of a deeper US recession. The ADP National employment report showed a decline of 693k in US private sector employment for December, which could well prompt some analysts to lower their already weak forecasts for this Friday Non-farm payrolls number. Market expects US non-farm jobs to drop by 500k in December. Analyst said the ADP report suggested that the government's more comprehensive non-farm payrolls data could show a loss of about 670k jobs.

The Dollar reversed from nearly one-month highs against Euro and 5-week peaks versus Yen, with investors taking profits, including Central Bank buying Euro at lower levels for reserves management purposes as well as interest from funds.

Yesterday, EurUsd traded up 0.81% at 1.3615, down from a session peak of 1.3747 but well off the one-month low 1.3313 hit on Tuesday. UsdJpy fell 0.7% to 92.74 after hitting 5-week highs 94.64. UsdChf fell 1.14% to 1.1037 after hitting 1.0869 low. GbpUsd rose 1.08% to 1.5072 having hit 1.5280 intraday high.

Yesterday data showed a fast weakening euro zone economy and easing inflation there, which raised the expectation for the European Central Bank to cut rates again next week. Euro-zone producer prices fell sharply in November. That was following previous day data showing a smaller-than-expected rise in consumer prices, raising expectations that the ECB will be ready to ease monetary policy, not only at its meeting next week, but next month as well.

Bank of England is expected to cut rate by a minimum of 50bp. However many analysts are betting on a 100bp to 150bp cut from current 2%.

Today's Key Issues (time in GMT):

06:45 CHF December Unemployment rate Adj. 2.8% vs 2.7%
07:00 EUR November German Exports -10.6% vs -0.5% (mom)
07:00 EUR November German Imports -5.6% vs -3.5% (mom)
07:00 EUR November German Trade balance €10.7b vs €15.8b
08:15 CHF December CPI -0.5% vs -0.7% (mom)
08:15 CHF December CPI 0.7% vs 1.5% (yoy)
09:00 NOK November Manufacturing output -0.7% vs -0.4%
10:00 EUR December Euro-zone Business climate -2.72 vs -2.14
10:00 EUR December Euro-zone Consumer sentiment -26 vs -25
10:00 EUR December Euro-zone Economic sentiment 71.8 vs 74.9
10:00 EUR Q3 Euro-zone GDP revised -0.2% vs -0.2% (qoq)
10:00 EUR Q3 Euro-zone GDP revised 0.6% vs 1.4% (yoy)
10:00 EUR Q3 Euro-zone Industrial sentiment -29 vs -25
10:00 EUR Q3 Euro-zone Services sentiment -13 vs -12
10:00 EUR novembre Euro-zone Unemployment rate 7.8% vs 7.7%
11:00 EUR November German Industrial orders-1.1% vs -6.1%
12:00 USD BoE rate decision 1.5% vs 2%
13:30 USD weekly Initial claims 540k vs 492k
15:00 CAD December Ivey PMI 38 vs 40.2
20:00 USD November Consumer credit -$0.5b vs -$3.5b (mom)

The Risk Today:

EurUsd Market traded as high as 1.4720 in December but reversed most of its gain down to 1.3313 low on Tuesday. Renewed strength may look for 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, 1.3313, Tuesday low, 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. Further 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). Initial resistance hold 1.5724 17th December high.

UsdJpy UsdJpy broke out the 4-month downtrend upper trendline and hit 94.64 high on Tuesday. Initial resistance holds 96.13 (38.2% retracement of 110.67 – 87.14 decline). 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. Strong 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 1.1279 on Tuesday. Uptrend may open the way through 1.1282 former support 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 break down 1.0655 (61.8% retracement of 0.9639 – 1.2298 advance) and return toward 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: