Bank of Japan cut interest rate by 20bp to 0.3%

The Dollar rose against the Yen on Thursday, but was little changed against the Euro, after gains in world stock markets and an interest rate cut by the Federal Reserve on Wednesday helped ease the recent flight into the dollar. Adding to pressure on the Yen was growing speculation ahead of the Bank of Japan interest rates cut this night by 20bp to 0.3%. The Dollar also edged higher against the Euro fueled by month-end demand from fund managers seeking to square their books or rebalance their portfolios. The rebound in stocks and high-yielders came after the Federal Reserve reduced borrowing costs by 50bp to 1% on Wednesday and left the door open for further easing of monetary policy. The Fed also approved currency swap lines with central banks in several major emerging countries, making Dollars available to help them deal with the credit crunch.
News and Events:


The Dollar rose against the Yen on Thursday, but was little changed against the Euro, after gains in world stock markets and an interest rate cut by the Federal Reserve on Wednesday helped ease the recent flight into the dollar. Adding to pressure on the Yen was growing speculation ahead of the Bank of Japan interest rates cut this night by 20bp to 0.3%.

The Dollar also edged higher against the Euro fueled by month-end demand from fund managers seeking to square their books or rebalance their portfolios. Fund managers worldwide are expected to buy substantial amounts of Dollars as the month-end approaches to neutralize hedges because of the reduction in their portfolios.

Data released yesterday showed a smaller-than-expected contraction in the US economy in Q3 underpinned sentiment on risky assets, including higher-yielding currencies. Still, the fall in US GDP in the last quarter was the sharpest contraction in 7 years.

The rebound in stocks and high-yielders came after the Federal Reserve reduced borrowing costs by 50bp to 1% on Wednesday and left the door open for further easing of monetary policy. The Fed also approved currency swap lines with central banks in several major emerging countries, making Dollars available to help them deal with the credit crunch. But analysts are mostly skeptical about the market's renewed optimism, noting a recovery in risk appetite may not be sustainable and should mean demand for Dollars would remain intact.

On Thursday, UsdJpy climbed 1.24% to 98.78, extending its recovery from a 13-year 90.91 low touched last Friday. EurJpy rose 0.51% to 126.42. EurUsd was down 0.66% at 1.2873 in volatile market pulling back from intraday 1.3298 high. GbpUsd rose 1.73% to 1.6366. UsdChf dropped 1.61% at 1.1328.





Today's Key Issues (time in GMT):


00:00 JPY BoJ Target Rate 0.3% vs 0.5%
06:00 JPY BoJ to release semi-annual Economic Outlook report
07:00 EUR September German Retail sales -2.3% vs 1.9% (mom)
07:00 EUR September German Retail sales 1.2% vs 3.3% (yoy)
08:30 DKK October Industrial outlook -12 vs -12
09:00 NOK September Credit indicator 11.9% vs 12.5%
10:00 EUR October Euro zone Inflation 3.2% vs 3.6% (yoy)
10:00 EUR septembre Euro zone Unemployment rate 3.5% vs 3.9%
10:30 CHF October KOF Indicator 0.49 vs 0.62
12:30 USD September Consumption adjusted -0.3% vs 0%
12:30 USD September Core PCE price 0.1% vs 0.2% (mom)
12:30 USD Q3 Employment costs 0.7% vs 0.7%
12:30 USD September Personal Income 0.1% vs 0.5%
12:30 CAD August GDP -0.4% vs 0.7% (mom)
13:45 USD October Chicago PMI 48 vs 56.7
13:55 USD October University of Michigan conditions final 58.9 vs 75
13:55 USD October University of Michigan expectation final 57 vs 67.2
13:55 USD October University of Michigan sentiment final 57.5 vs 70.3
The Risk Today:

EurUsd:
Market dropped as low as 1.2330 early this week. On the downside, further 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 last Friday. Strong support holds 1.5279 Monday low. Initial support holds 1.5939 yesterday low. Deep following supports are 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.7631 last weeks high ahead of 1.7144 (38.2% retracement of 2.0158 – 1.5265 3-month drop). Further resistance holds 1.7144 (50% retracement).


UsdJpy:
Market broke down the lower trendline on September-October downtrend accelerating drop to 90.91 last Friday. Further pressure might open the way down to 79.70 April 1995 low. 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.


UsdChf:
Market posted new high 1.1749 last week. Further advance may open the way to 1.1895 October 2007 high and strong resistance. On the downside, recent weakness below 1.1489 early October high 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:



By
Jean-Claude Braha
- ACM Advanced Currency Markets, Geneva, Switzerland
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Provided by ACM: http://www.ac-markets.com