Dollar fell after BoE and ECB left rates unchanged

The Euro rebounded on Thursday from a two-month low against the Dollar after European Central Bank President Jean-Claude Trichet said inflation remains his top concern, signaling the bank won't cut interest rates anytime soon. After the ECB left the benchmark refinancing rate at 4% on Thursday, Trichet told reporters that high energy and food costs mean the euro-zone still faces "a protracted period" of high inflation. The ECB's continued focus on inflation at a time when global growth appears to be slowing prompted investors to reduce exposure to risk, and that boosted the low-yielding Yen that's typically used to finance risky trades. The Bank of England left interest rates on hold at 5%. Economic data in Britain has reflected a weakening economy, with house prices sliding rapidly, and analysts said they expected the BoE to cut rates when it meets again in June.


News and Events:

The Euro rebounded on Thursday from a two-month low against the Dollar after European Central Bank President Jean-Claude Trichet said inflation remains his top concern, signaling the bank won't cut interest rates anytime soon. After the ECB left the benchmark refinancing rate at 4% on Thursday, Trichet told reporters that high energy and food costs mean the euro-zone still faces "a protracted period" of high inflation. Some investors had expected Trichet to temper his tough talk on inflation and focus on signs of slowing euro zone growth. That helped lift EurUsd off a two-month 1.5285, pushing it as high as 1.5442. It closed at 1.5406 up 0.4%. The ECB's continued focus on inflation at a time when global growth appears to be slowing prompted investors to reduce exposure to risk, and that boosted the low-yielding Yen that's typically used to finance risky trades.

UsdJpy eased 1.02% to 103.84 while the EurJpy drop 0.61%to 159.97. UsdChf fell -0.71% to 1.0507, while GbpUsd was steady at 1.9556 +0.25% after the Bank of England left interest rates on hold at 5%. Economic data in Britain has reflected a weakening economy, with house prices sliding rapidly, and analysts said they expected the BoE to cut rates when it meets again in June.

Analysts said the ECB, which faces rising food and energy prices on one hand and slowing growth on the other hand, is in a very difficult situation. ECB can't cut rates because inflation remains sticky. But analysts also said continued weakness in euro zone data could keep pressure on the single currency, making any return to a record high above 1.6000 unlikely.




Today's Key Issues (time in GMT):

08:00 NOK April Core Inflation 2.3% vs 2.1%
11:00 CAD April Employment Change 10k vs 14.6k
12:30 CAD March Trade Balance Cad$ 4.5B vs Cad$ 4.94B
12:30 CAD March International trade Cad$ -61.3B vs Cad$ -62.32B
13:15 USD Fed’s Evans speaks on the economy, Illinois
21:30 USD Treasury’s Paulson speaks on financial education, Washington


The Risk Today:

EurUsd: Euro has been weak for the three weeks and broke yesterday 1.5400 low trading range. Psychological 1.5000 key level marks strong support before 1.4500 pivot point. Pivot point hold 1.6000 resistance ahead of key resistance 1.6200 market target. Initial resistance hold 1.5528 former support.

GbpUsd: Cable broke down Wednesday 1.9600 range support. Further pressure may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Renewed advance over 1.9600 and 1.9800 may reopen the way toward 2.0000 psychological level. Actual trading range is 1.9500 – 1.9800.

UsdJpy: Recent 1 ½-month uptrend found resistance around 105. Further advance would bring market up to 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Profit taking or return below 105 might lead the way down to 100 – 103 consolidation trading range. Minor support holds 102.95 early April high.

UsdChf: Market broke up 1.0500 last Friday, hitting 1.0609 two-month high. A return below 1.0500 may reopen the way down 1.0200 and toward 0.9639 17th March low. Current uptrend looks set up over 1.0200 former resistance. Early January double top 1.1191 marks strong resistance.


Resistance and Support:



By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland
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