Dollar rose on year-end buying momentum

The Dollar rose against the Euro on Monday, boosted by year-end transactions as well as speculation that US inflation may cause the Federal Reserve to be less aggressive in cutting interest rates next year. But tight credit conditions and fear of slower US growth weakened the Dollar elsewhere, with the Yen and Swiss franc rising as investors unwound carry trades that involve borrowing these currencies to fund purchases of higher-yielding assets. The Fed is still expected to lower rates in 2008 to shield the economy from a slumping housing market, but analysts think price pressures could force officials to adopt a slower pace of monetary easing. This would not significantly erode the Dollar's yield advantage, since global growth worries are likely to prompt other major Central Banks to cut rates or hold them steady. Interest rate futures are reflecting about a 90% implied chance of a 25bp interest rate cut in January, down from around 100% last week.


News and Events:
The Dollar rose against the Euro on Monday, boosted by year-end transactions as well as speculation that US inflation may cause the Federal Reserve to be less aggressive in cutting interest rates next year. But tight credit conditions and fear of slower US growth weakened the Dollar elsewhere, with the Yen and Swiss franc rising as investors unwound carry trades that involve borrowing these currencies to fund purchases of higher-yielding assets. US equities also fell as investors worried that rising inflation and signs of weak holiday retail sales would further darken the economic outlook for the world's largest economy. Analysts said the market mood remains mildly favorable for the Dollar heading into year-end, partly on the view that rising US inflation may keep the Fed from cutting benchmark short-term rates at its next policy meeting on Jan. 30. Yesterday, EurUsd traded unchanged at 1.4412, after earlier dipping to a 1-1/2-month low of 1.4331. UsdJpy was also unchanged to 113.25 after touching 112.83 low. UsdChf hit 1.1515 low before ending unchanged at 1.1552. EurJpy fell 0.51% to 162.67 while GbpJpy fell 0.21% to 228.12. GbpUsd gained 0.24% to 2.0210. The Fed is still expected to lower rates in 2008 to shield the economy from a slumping housing market, but analysts think price pressures could force officials to adopt a slower pace of monetary easing. This would not significantly erode the Dollar's yield advantage, since global growth worries are likely to prompt other major Central Banks to cut rates or hold them steady. Interest rate futures are reflecting about a 90% implied chance of a 25bp interest rate cut in January, down from around 100% last week. Earlier on Monday, they fell to around 70%. Yesterday, an unexpected surge to $114 billion in U.S. long-term capital inflows in October, well above September's $15.4 billion inflow, lent some Dollar support, though analysts were skeptical about the data's relevance.




Today's Key Issues (time in GMT):

09:30 GBP November Consumer Price Index 0.3% vs 0.5% (MoM)
09:30 GBP November Consumer Price Index 2.2% vs 2.1% (YoY)
09:30 GBP November Core CPI 1.6% vs 1.5% (YoY)
09:30 GBP November Retail Price Index 0.3% vs 0.4% (MoM)
09:30 GBP November Retail Price Index 4.2% vs 4.2% (YoY)
10:00 EUR October Euro Zone Trade Balance € 4.1B vs € 3.1B
10:45 GBP BoE’s King and Gieve testify t Treasury Committee
12:00 CAD November Consumer Price Index 0.2%% vs -0.3% (MoM)
12:00 CAD November Consumer Price Index 2.4% vs 2.4% (YoY)
12:00 CAD November Bank of Canada CPI 0.1%% vs -0.2% (MoM)
12:00 CAD November Bank of Canada CPI 1.7% vs 1.8% (YoY)
13:30 CAD November Leading Indicators 0.1% vs 0.1%
13:30 USD November Housing starts 1180k vs 1229k
13:30 USD November Building Permits 1150k vs 1170k
15:00 USD Fed Governors to hold Open Meeting on Mortgage Rules
21:45 NZD November Food Price Index previous 0.6%
23:50 JPY October All Industry Activity Index 1.1% vs -1.6%



The Risk Today:

EurUsd Euro pulled back from Friday 23rd November record high 1.4967. It broke the three weeks support 1.4520 on Friday. On the downside, the return below 1.4500 did open the way toward 1.4280 former resistance. This could put into focus 1.4000 nearby support and 1.4125 trendline support. Initial resistance holds 1.4520 former support.

GbpUsd Cable corrected Friday down to 2.0101 on Monday below 2.0200 former support. But GbpUsd closed up 0.24% to 2.0210. On the downside, confirmation below 2.0200 might drive toward 2.0000 psychological levels to complete the downtrend. On the upside, 2.0200 former support marks the initial resistance before 2.0577 Dec 12th high.

UsdJpy Uptrend started end November went through 113.61 on Friday. This recent move up put 114 into focus. Further strength may open the way toward 117.63 resistance. On the downtrend, initial support holds 110, before 107.22 trend November 26th low. Initial resistance holds 113.61 Friday high.

UsdChf Uptrend from 1.0888 23rd November low remains strong. Market had found support on 1.1327 end November high. Initial resistance holds 1.1547 Friday high. It would also need a return over 1.1640 level to relieve 6 months bear threat. Initial support holds 1.1402 Friday low


Resistance and Support:




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