Dollar stays weak near Euro record high and Yen 2 ½ year low

The Dollar slid further to a fresh 2-1/2-year low against the Yen on Monday in line with falls in US equities, as renewed credit worries affirmed expectations that more US rate cuts are imminent. The interest rate futures market has fully priced in a 0.25% monetary policy easing by the Fed when it next meets on Dec. 11, to 4.25% and show a 20% implied chance it could cut rates by a 0.5% instead. EurUsd was up 0.26% at 1.4877, within sight of the lifetime high of 1.4967 set on Friday. ECB Governing Council member Nout Wellink said on Monday its rise against the Dollar was not of "immediate concern" for European exporters but a further ascent would be "worrying".


News and Events:
The Dollar slid further to a fresh 2-1/2-year low against the Yen on Monday in line with falls in US equities, as renewed credit worries affirmed expectations that more US rate cuts are imminent. Investors are on edge about fallout from the credit crunch as the approaching year-end may force them to dump assets or scramble for cash to get books in order in strained markets. Worries about the US economy and expectations for additional Federal Reserve interest rate cuts have caused the Dollar\'s broad tumble. Yesterday, UsdJpy dropped to 107.22, the lowest since June 2005, before closing at 107.35 -0.88%. EurJpy went down 0.62% to 159.72. The focus has also been on the reemergence of money market strains, with the European Central Bank and the Federal Reserve announcing measures to mitigate liquidity pressures around the year-end, said Analyst. The interest rate futures market has fully priced in a 0.25% monetary policy easing by the Fed when it next meets on Dec. 11, to 4.25% and show a 20% implied chance it could cut rates by a 0.5% instead. London Inter-bank offered rates for two-month Euro deposits rose to new 6-1/2-year highs on Monday and three-month Euro rates rose for a ninth straight session on persistent concerns over banks\' year-end funding. Two-month and three-month Dollar Libor rates also rose to their highest in a month. The Fed and the ECB on Monday sought to calm stressed money markets by promising banks extra money to help them cope with a possible year-end cash squeeze. EurUsd was up 0.26% at 1.4877, within sight of the lifetime high of 1.4967 set on Friday. A growing number of analysts suggest the exchange rate will breach the psychologically key 1.5000 level this year. European officials have increasingly expressed concern about the Euro\'s rapid rise and the potential drag on exporters. ECB Governing Council member Nout Wellink said on Monday its rise against the Dollar was not of "immediate concern" for European exporters but a further ascent would be "worrying".

Today's Key Issues (time in GMT):

08:15 CHF October PPI 0.3% vs -0.3% (MoM)
08:15 CHF October PPI 2.8% vs 2.4% (MoM)
08:15 SEK October Consumer Confidence 15.2 vs 17.7
08:15 SEK October Manufacture Sentiment -1 vs 4
08:30 SEK 3Q Current Account 41.2B vs 39.7B (QoQ)
08:15 SEK October PPI -0.4% vs 0.6% (MoM)
08:15 SEK October PPI 3.9% vs 5% (YoY)
09:00 EUR Germany Ifo Business Climate 103.3 vs 103.9
09:00 EUR Germany Ifo Current Conditions 109.1 vs 109.6
09:00 EUR Germany Ifo Expectations 97.8 vs 98.6
15:00 USD November Consumer Confidence 91.6 vs 95.6
15:00 USD November Richmond Fed Manufacturing Index -6 to 0 vs -5
15:15 GBP Bank of England’s Blanchflower testifies to parliament.
16:20 USD Fed’s Plosser speaks on the economic outlook, Rochester
17:30 USD Fed’s Evans speaks at futures industry, Chicago
17:00 USD October Midwest Manufacturing previously 105.2
17:45 GBP Bank of England’s Sentence speaks, London
23:50 JPY October Retail Sales 0.5% vs 0.5%



The Risk Today:

EurUsd Euro remains in a positive trend. It set new record high on Friday at 1.4967. Two weeks ago, it found support on 1.4520 and is currently consolidating in between 1.4800 and 1.4850. On the downside, only a return below 1.4500 and further drop to 1.4280 former resistance would threaten the uptrend. This could open the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial support holds 1.4800.

GbpUsd Following early November heavy drop, -1.73% 12 November, Cable found support last week around 2.0600. On the upside, 2.1161 high (Friday 9th) marks the strong resistance before putting 2.1355 May 11th 1981 into focus. Initial resistance holds 2.0764 Friday high. Strong resistance holds 2.0844 Nov 14th high. On the downside, a strong return below 2.0525 may open a market reversal. But it would need renewed pressure below 2.0200 and further weakness toward 2.0000 psychological levels to validate a downtrend. Initial support holds 2.0525.

UsdJpy Trend remains bearish. UsdJpy mostly drop last week posting new lows. It hit 107.22 yesterday, 2 ½-year low. On the downtrend, supports hold 106.50 June 2005 low and 101.68 January 2005 low. On the upside, market needs a return over 109 and 114 to undermine the actual downtrend. This may open the way toward 117.63 resistance. Initial resistance holds 109.13 former support.

UsdChf Downtrend remains heavy. It posted an extreme low 1.0888 on Friday, following recent break toward the 12-year low 1.1110 from April 1995. Market will again found support on 1.1000 key level. Initial resistance holds 1.1300 (12th Nov) high. It would also need a return over 1.1500 and 1.1640 level to relieve actual bear threat.


Resistance and Support:

 

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