Forex market is mixed ahead of US presidential election

The Dollar tends to gain as risk aversion rises because dollar-based investors repatriate money or look for safety in U.S. Treasury debt. US factory activity plunged to a 26-year low last month boosted US and global recession fears. Analyst said the US manufacturing data, an $11bio capital injection in South Korea, an interest rate cut in India and expected rate cuts in the euro zone, Britain and Australia show ongoing stress in financial markets and the world economy even as interbank lending markets continue to loosen up. The European Central Bank and the Bank of England are expected to cut rates by at least 50bp. The Federal Reserve last week cut its key rate by 50bp to 1 percent and the Bank of Japan cut its rate to 0.30% percent from 0.50%. Analysts say the BoE is the most likely of the three to surprise markets with an even heftier rate cut.
 

News and Events:


The Dollar rose on Monday ahead of the US presidential election as lingering concerns about financial markets and the world economy prompted investors to reduce risk and seek safety in Dollar assets. The Dollar tends to gain as risk aversion rises because dollar-based investors repatriate money or look for safety in U.S. Treasury debt.

Expected interest rate cuts later this week by the European Central Bank and Bank of England hurt the Euro and Sterling, while data showing US factory activity plunged to a 26-year low last month boosted US and global recession fears. Analyst said the US manufacturing data, an $11bio capital injection in South Korea, an interest rate cut in India and expected rate cuts in the euro zone, Britain and Australia show ongoing stress in financial markets and the world economy even as interbank lending markets continue to loosen up.

Yesterday, EurUsd was 0.93% at 1.2609 but off a session low of 1.2576. GbpUsd fell 1.92% to 1.5769 after dipping to 1.5723 low. UsdJpy rose 0.52% to 98.98. UsdChf rose 1.66% to 1.1774. AudUsd rose 1.12% to 0.6752 ahead of expectations of a 50bp rate cut on today meeting.

The European Central Bank and the Bank of England are expected to cut rates by at least 50bp. The Federal Reserve last week cut its key rate by 50bp to 1 percent and the Bank of Japan cut its rate to 0.30% percent from 0.50%. Analysts say the BoE is the most likely of the three to surprise markets with an even heftier rate cut.

Investors will focus on the today US presidential election. Analysts say a win by Democrat Barack Obama, who is leading his Republican opponent, John McCain, in most polls, would be marginally better for the Dollar, if only because the Democrats already control Congress. That would make it easier for a new administration to push through activist policies to boost markets.



Today's Key Issues (time in GMT):


03:30 AUD Reserve Bank of Australia key interest rate 5.25% vs 6%
06:45 CHF October CPI 0.5% vs 0.1% (mom)
06:45 CHF October CPI 2.6% vs 2.9% (yoy)
10:00 EUR September Producer prices -0.1% vs -0.5%
10:00 EUR September Producer prices 8% vs 8.5%
15:00 USD September Durable Goods orders revised 0.8% vs 0.8%
15:00 USD September Factory orders revised -0.8% vs -4%
15:45 USD Fed’s Fisher speaks on economic challenges, Texas
The Risk Today:

EurUsd:
Market dropped as low as 1.2330 last week and sharply rebounded to 1.3298 high last Thursday. This shows actual trading range 1.2330 – 1.3298. On the downside, renewed weakness will 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. On the 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 1.3769 14th October high.


GbpUsd:
Market hit 1.5265 low on 24th October and then recovered up to 1.6673 high last week. This holds trading range 1.5265 – 1.6673. Strong support holds 1.5279 Monday low. Deep following supports are 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.7631 last weeks high ahead of 1.7144 (38.2% retracement of 2.0158 – 1.5265 3-month drop). Further resistance holds 1.7744 (50% retracement).


UsdJpy:
Market broke down the lower trendline on September-October downtrend accelerating drop to 90.91 on Friday 24th October. Further pressure might open the way down to 79.70 April 1995 low. On the upside, 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 100 pivot point.


UsdChf:
Market recovered yesterday to 1.1790 high from Friday 1.1203 low. Further advance may open the way to 1.1895 October 2007 high and strong resistance. On the downside, renewed weakness below 1.1203 Friday 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

_____________________________________
Provided by ACM: http://www.ac-markets.com