Dollar dropped against majors on Fed on rate cut speculation.

The Dollar dropped to 2-month lows against the Euro and a basket of currencies on Monday on speculation the Federal Reserve will cut interest rates to near zero this week, further eroding its yield appeal. The euro surged above 1.3700 as markets awaited the outcome of a Fed policy meeting on Tuesday, when it is widely expected to cut rates by at least 50bp, from actual 1%. With trading starting to wind down for the year, analysts said the Dollar came under pressure as traders booked profits on the currency's 25% rally against the Euro over the past 4 months. Uncertainty over the fate of US automakers will continue to be a major risk factor in the currency market. Fears have grown that a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies. But President George W. Bush said on Monday an announcement on a car industry rescue was not imminent.
News and Events:


The Dollar dropped to 2-month lows against the Euro and a basket of currencies on Monday on speculation the Federal Reserve will cut interest rates to near zero this week, further eroding its yield appeal. The euro surged above 1.3700 as markets awaited the outcome of a Fed policy meeting on Tuesday, when it is widely expected to cut rates by at least 50bp, from actual 1%. Investors will also scrutinize the accompanying statement for clues as to what alternative policy tools the central bank will take to boost the economy.

Yesterday, EurUsd was up 2.19% at 1.3695 after climbing as high as 1.3728, the highest level since mid-October. UsdJpy fell 0.27% to 90.53. UsdChf was 1.8% lower at 1.1581. GbpUsd rose 2.34% at 1.5380.

With trading starting to wind down for the year, analysts said the Dollar came under pressure as traders booked profits on the currency's 25% rally against the Euro over the past 4 months. Analysts said the Dollar was starting to respond negatively to concerns about further weakness in the US economy after a run of weak data caused an exodus from risky positions and increased flight-to-quality buying in the currency.

Uncertainty over the fate of US automakers will continue to be a major risk factor in the currency market. Fears have grown that a failure of one or more of the automakers could exacerbate a year-long recession and drag down other companies. The White House said on Friday it was considering tapping a $700 billion financial industry bailout fund to prevent a collapse of ailing automakers. But President George W. Bush said on Monday an announcement on a car industry rescue was not imminent.





Today's Key Issues (time in GMT):


07:45 EUR November French CPI final -0.5% vs 0.1% (mom)
07:45 EUR November French CPI final 1.9% vs 3% (yoy)
08:00 EUR December French Markit Manufacturing Flash PMI 35.9 vs 37.3
08:00 EUR December French Markit Services Flash PMI 41.6 vs 46.2
08:30 EUR December German Markit Services Flash PMI 46.4 vs 45.1
08:30 EUR December German Markit Manufacturing Flash PMI 33.5 vs 35.7
09:00 EUR December Euro zone Markit Comp Flash PMI 37.8 vs 38.9
09:00 EUR December Euro zone Markit Manufacturing Flash PMI 34.3 vs 35.6
09:00 EUR December Euro zone Markit Services Flash PMI 41.2 vs 42.5
09:30 GBP November CPI -0.3% vs -0.2% (mom)
09:30 GBP November CPI 3.9% vs 4.5% (yoy)
09:30 GBP November RPI -0.7% vs -0.3% (mom)
09:30 GBP November RPI 3.1% vs 4.2% (yoy)
13:30 USD November Building permits 700k vs 730k
13:30 USD November Housing Starts 740k vs 791k
13:30 USD November CPI ex-food 0.1% vs -0.1% (mom)
13:30 USD November CPI ex-food 2.1% vs 2.2% (yoy)
13:30 USD November CPI inflation -1.2% vs -1% (mom)
13:30 USD November CPI inflation 1.5% vs 3.7% (yoy)
13:30 CAD October Manufacturing sales -0.5% vs 0.1%
19:15 USD FOMC rate decision 0.5% vs 1%
22:00 USD weekly ABC CCI -52 vs -52
The Risk Today:

EurUsd:
Market broke on the upside the November triangle consolidation pattern. It was again trading higher yesterday, having hit 1.3728 high. On the further upside, a return over 1.4000 (former trendline support) and 1.5000 will confirm release of the 3-month pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. On the downside, renewed weakness below 1.2430 21st November low may 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. Former resistance 1.3302 holds now initial support.


GbpUsd:
Market dropped as low as 1.4471 on 4th December in current 5-month downtrend dropping from Mid-July 2.0158 high. Strong supports hold 1.3682 March 2001 low. On the upside, initial resistance holds 1.5458 (23.6% retracement of 1.8669-1.4471 decline) ahead of strong resistance holds 1.6673 30th October high. Major pivot point is 1.6570 (50% retracement of 1.8669–1.4471 decline). Further resistance holds 1.7816 (50% retracement of 2.1161-1.4471 decline). Trading range is set between Tuesday 25th 1.5534 high and 1.4471 December low, respectively initial resistance and support.


UsdJpy:
UsdJpy was heavily under pressure Friday hitting 88.35 low. 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 1.1561 yesterday adding to last week downtrend. . Further weakness may open the way down to 1.1203 30th October low, which would strongly undermine the March-November 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. 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).



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