Euro gain on bank rescue plan but economic worries persist

The Dollar consolidated on Tuesday while short-term interest rates eased following aggressive steps by global authorities to pump cash into troubled banks to resolve the credit crisis. The United States said it would inject $250 billion into banks, including the country's nine largest. The move followed similar initiatives in Britain, France and Germany. As a result there was some improvement in risk appetite, causing investors to unwind some safe-haven trades in both the Dollar and the Yen. Such correction in the Dollar was not surprising given the recent rally. Data on Tuesday from Germany's ZEW research institute showed a bigger-than-expected slide in investor sentiment in October, suggesting the euro zone's top economy may be in for a prolonged slump. Analysts said they expected the European Central Bank to cut interest rates through 2009 to about 2.5% and the Federal Reserve to ease by another 50bp to 1%, which should narrow the Euro's yield appeal.
News and Events:


The Dollar consolidated on Tuesday while short-term interest rates eased following aggressive steps by global authorities to pump cash into troubled banks to resolve the credit crisis.

The interbank cost of borrowing Dollars for three-month had its biggest fall since March on Tuesday, in response to the United States’ announcement that it would inject $250 billion into banks, including the country's nine largest. The move followed similar initiatives in Britain, France and Germany. Three-month Libor Dollar rates fixed at 4.6350% from 4.7525% on Monday, according to the British Bankers Association.

As a result there was some improvement in risk appetite, causing investors to unwind some safe-haven trades in both the Dollar and the Yen. Such correction in the Dollar was not surprising given the recent rally. EurUsd climbed to a one-week high of 1.3769. It last trade 0.57% down at 1.3565. EurJpy dropped 1.52% to 137.76. UsdJpy fell 0.08% to 101.46. UsdChf rose 0.29% to 1.1385. GbpUsd was 0.25% lower to 1.7402. The decline in US stocks saw the Dollar recovering against the high-yielding Australian, New Zealand Dollars and British pound. AudUsd fell 1.53% to 0.6945 and NzdUsd 0.24% to 0.6177.

Data on Tuesday from Germany's ZEW research institute showed a bigger-than-expected slide in investor sentiment in October, suggesting the euro zone's top economy may be in for a prolonged slump. Analysts said they expected the European Central Bank to cut interest rates through 2009 to about 2.5% and the Federal Reserve to ease by another 50bp to 1%, which should narrow the Euro's yield appeal.




Today's Key Issues (time in GMT):


06:00 EUR September Germany CPI final -0.1% vs -0.3% (mom)
06:00 EUR September Germany CPI final 2.9% vs 3.1% (yoy)
06:00 EUR September Germany HICP final -0.1% vs -0.4% (mom)
06:00 EUR September Germany HICP final 3% vs 3.3% (yoy)
08:30 GBP August Average earnings 3mth 3.5% vs 3.5% (yoy)
08:30 GBP August ILO unemployment rate 5.6% vs 5.5%
09:00 EUR September Euro-zone inflation ex-food & energy 0.3% vs 0.3% (mom)
09:00 EUR September Euro-zone inflation ex-food & energy 2.5% vs 2.6% (yoy)
09:00 EUR September Euro-zone Inflation 0.1% vs -0.1% (mom)
09:00 EUR September Euro-zone Inflation 3.6% vs 3.8 % (yoy)
12:00 NOK Cenbank rate decision from 5.75%
12:30 USD October NY Fed manufacturing -10 vs -7.41
12:30 USD September Producer prices -0.4% vs -0.9% (mom)
12:30 USD September Producer prices core 0.2% vs 0.2% (mom)
12:30 USD September Retail sales ex-autos -0.3% vs -0.7% (mom)
12:30 USD September Retail sales -0.7% vs -0.3% (mom)
14:00 USD August Business Inventories 0.5% vs 1.1%
16:15 USD Bernanke speaks to Economic Club
23:50 JPY August Current account NSA -42.3% vs -17.3%
The Risk Today:

EurUsd:
Last week strong pressure hit strong support 1.3666 December 2004 high and broke below 1.3500. Market strongly rebounded yesterday up to 1.3769 high and now initial resistance. On the upside, only a return over 1.4000 and 1.5000 will release actual pressure and may put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200. Resistance holds 1.4002 former trendline support. On the downside, renewed weakness will focus on 1.3056 support (retracement of 0.8231 – 1.6039 advance). Initial support holds 1.3259 Friday low.


GbpUsd:
Last week market dropped as low as 1.6786 strong support. It recovered yesterday over 1.7422 former support posting 1.7631 intraday high. On the upside, strong support holds 1.7697 last week high ahead of 1.8304 former support. But renewed downtrend may look for 1.6568 November 2003 low and 61.8% retracement of 1.3682–2.1161 advances). Following supports are 1.4560 trendline and 1.3682 March 2001 low.


UsdJpy:
Downtrend started in September is still running and hit 97.91 low Friday. Market rebounded yesterday posting 103.07 high. On the further upside, recovery over 105 pivot point will put focus again on 108 and 110.67 15th August high. On the downside, renewed pressure may open the way to 95.75 17th March low. Current weak trend will stand below 103 upper trendline resistance.


UsdChf:
Market posted 1.1489 high last week. Further advance may open the way to 1.1596 December high and strong resistance. Initial support holds 1.1129 Friday low. On the downside, only weakness below 1.0692, 22nd September low, would give direction or open the way 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.



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