Dollar slipped against majors currencies ahead of FOMC

The Dollar slipped against most major currencies on Monday for the third consecutive session, ahead of a today widely expected Federal Reserve interest-rate cut. Futures fully reflect a 0.25% easing in the fed funds rate to 4.25% from 4.50%. But chances of a bigger move have fallen to 20% from around 50% a week ago because of a string of somewhat stronger-than-expected economic data. Markets have recently pared back aggressive US rate-cut forecasts, with analysts citing considerably more "optimism" that Fed action will be enough to prevent more severe fallout from market volatility. Last week comments from European Central Bank President Jean-Claude Trichet left open the possibility of higher rates next year as a result of lingering inflation.

News and Events:

The Dollar slipped against most major currencies on Monday for the third consecutive session, ahead of a today widely expected Federal Reserve interest-rate cut. Futures fully reflect a 0.25% easing in the fed funds rate to 4.25% from 4.50%. But chances of a bigger move have fallen to 20% from around 50% a week ago because of a string of somewhat stronger-than-expected economic data. EurUsd was up 0.38% at 1.4708. It got a boost last week after comments from European Central Bank President Jean-Claude Trichet left open the possibility of higher rates next year as a result of lingering inflation. UsdJpy was relatively unchanged at 111.67, above a 2-1/2-year low of around 107.20 yen hit last month. GbpUsd rose 0.56% to 2.0443. EurJpy rose 0.5% to 164.52. EurChf climbed 0.37% higher to 1.6597. In the past few weeks, the Dollar was supported by expectations of a 0.5% rate cut by the Fed, as dealers expected a kick start to the economy. However, persistent tightness in credit markets and lower expectations for such a big rate cut had left the dollar back in a familiar downward trend. Markets have recently pared back aggressive US rate-cut forecasts, with analysts citing considerably more "optimism" that Fed action will be enough to prevent more severe fallout from market volatility. A US government plan unveiled last week to limit potential mortgage defaults also stirred hopes that the economy's downturn will be contained. Meanwhile, central bank officials in the euro zone have given very few indications that they see the need for immediate stimulus and, if anything, are more concerned with upward price pressures. Comments on Monday by European Central Bank Executive Board Member Juergen Stark saying euro-zone inflation could be higher in 2008 than indicated in the ECB's latest projections last week also bolstered the view that the bank is not likely to ease any time soon.




Today's Key Issues (time in GMT):

09:30 GBP October Trade Balance £-7.4B vs $-7.75B
10:00 EUR December Germany ZEW current conditions 69 vs 70
10:00 EUR December Germany ZEW economic sentiment -34 vs -32.5
15:00 USD October Wholesale inventories 0.5% vs 0.8%
19:15 USD FOMC interest rate decision expected -0.25bp to 4.25%
23:50 October Current account 34.6% vs 40.4%
23:50 October Corp goods prices 2.1% vs 2.4% (YoY)



The Risk Today:

EurUsd Euro pulled back from Friday 23rd November record high 1.4967. Breaking down the 4-month Trendline support, it might return down to two weeks ago support on 1.4520. On the downside, only a return below 1.4500 and further drop to 1.4280 former resistance would threaten the last 4-month uptrend. This could open the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial resistance holds 1.4723 former support.

GbpUsd Cable corrected Thursday down to 2.0181 testing the 2.0200 strong support. On the downside, renewed pressure might push below 2.0200 and toward 2.0000 psychological levels to complete the downtrend. On the upside, 2.0588 former support marks the resistance before 2.0833 Nov. 28th high.

UsdJpy Downtrend has end with November. Friday 30th November break up 110 level had put 114 into focus. This may open the way toward 117.63 resistance. On the downtrend, supports hold 106.50 June 2005 low and 101.68 January 2005 low. Initial support holds 110. Initial resistance holds 112.15 today high.

UsdChf Downtrend came to an end further to rebound on 1.0888 23rd November low. Market had found support on 1.1000 key level. Initial resistance holds 1.1353 yesterday high. It would also need a return over 1.1500 and 1.1640 level to relieve 6month bear threat. Initial support holds 1.1154 last week low.


Resistance and Support:




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