Forex market await tomorrow Central banks rate decisions

The Dollar and the Yen fell against the Euro on Tuesday as a stock market rebound reduced demand for safe havens. Shares on Wall Street rose sharply in the last hour of trading after Monday's sell-off. Overall, moves in major currencies were modest, with investors cautious ahead of monetary policy decisions from the European Central Bank and the Bank of England later in the week. Both are expected to slash rates aggressively to spur growth. An unexpectedly 100bp cut to 4.25% from the Reserve Bank of Australia kept the Australian dollar under pressure.
News and Events:


The Dollar and the Yen fell against the Euro on Tuesday as a stock market rebound reduced demand for safe havens. Shares on Wall Street rose sharply in the last hour of trading after Monday's sell-off. The Forex market has closely eyed equity performance for direction in recent weeks, with rising stocks boosting risk appetite and hurting demand for the US and Japanese currencies.

Overall, moves in major currencies were modest, with investors cautious ahead of monetary policy decisions from the European Central Bank and the Bank of England later in the week. Both are expected to slash rates aggressively to spur growth. The Dollar and the Yen have found support in recent months as investors reduced exposure to riskier assets. US-based investors have also moved funds back to their domestic market, further boosting the Dollar. Despite Tuesday's pullback, those factors are set to continue to benefit the two currencies, analysts said.

Yesterday, EurUsd rose 0.8% to 1.2710. UsdJpy was up 0.38% at 93.57 having traded as low as 92.63, the lowest since Oct. 28. GbpUsd rose 0.24% to 1.4899 despite the view that the Bank of England will slash rates on Thursday. UsdChf was 0.11% lower at 1.2027.

An unexpectedly 100bp cut to 4.25% from the Reserve Bank of Australia kept the Australian dollar under pressure. The RBA's move raised expectations other central banks may follow suit with aggressive easing in Britain and the euro zone to revive their flagging economies. Such cuts could lend some further support to the Dollar by dimming the appeal of those higher-yielding currencies. The European Central Bank is seen cutting rates on Thursday by at least 50bp from 3.25%, and BoE by 100bp from 3%. Strategists said that with investors already discounting a sharp drop in euro zone rates, the potential for disappointment is rising.





Today's Key Issues (time in GMT):


07:00 EUR NATO foreign ministers meet, Brussels
09:00 EUR November Euro-zone Markit Services 43.3 vs 45.8
09:00 EUR November Euro-zone Markit Composite 39.7 vs 43.6
09:30 GBP November Markit Services 41.2 vs 42.4
10:00 EUR October Euro-zone Retail sales -0.4% vs -0.2% (mom)
10:00 EUR October Euro-zone Retail sales -1.4% vs -1.6% (yoy)
13:15 USD November ADP National Employment -200k vs -157k
13:30 USD Q3 Productivity revised 0.9% vs 1.1%
14:00 USD November ISM Non-manufacturing PMI 42 vs 44.4
14:00 USD November ISM Non-mfg Business Act 42.5 vs 44.2
15:15 USD Fed’s Kroszner speaks on the mortgage crisis, Washington
16:00 CHF SNB’s Roth holds speech in Vezia, Switzerland
17:00 EUR France’s Jouyet speaks at Brussels Think Tank
17:30 USD Fed’s Lacker, BofA’s Lewis, Wachovia’s Steel speak on economy
20:00 NZD Central Bank interest rate 5% vs 6.5%
The Risk Today:

EurUsd:
Market is still trading in the last 3-week trading range 1.2330 – 1.3298 but breaking up the triangle consolidation pattern. This may open the way to 1.3500 target equal to 1.3302-1.2334 spread. On the further upside, only a return over 1.4000 (former trendline support) and 1.5000 will release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3298 end October high. On the downside, weakness below 1.2690 may open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low.


GbpUsd:
Market dropped as low as 1.4558 on November 13th in current 3-month downtrend dropping from late October 1.6673 high. Strong supports hold 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 30th October high ahead of 1.7080 (38.2% retracement of 2.1161 – 1.4558). Further resistance holds 1.7860 (50% retracement). Trading range is set between Tuesday 25th 1.5534 high and 1.4558 November 13th low, respectively initial resistance and support.


UsdJpy:
Market confirmed yesterday the break down November triangle pattern. Yesterday, pressure did open the way down to 92.88 low. Further downtrend may open 79.70 April 1995 low. Also, strong support holds 90.91 24th October low. On the upside, strong resistance holds 100 pivot point, but only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 97.43 last week high.


UsdChf:
Market hit 1.2298 high on 21st November. Further strength may look for 1.2463 strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 – 0.9639 decline). On the downside, renewed weakness below 1.1605 initial support and 1.1203 30th October low would undermine the current uptrend and reverse through 1.0692 22nd September low and 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