Markets were turned on its head following the emergency 75bps rate cut on Tuesday

Currency Trading Summary

U.S. Dollar Trading (USD) markets were turned on its head following the emergency 75bps rate cut on Tuesday. The first inter-meeting cut since 2001 ensured that the borrowing rate in the world’s largest economy now sits at 3.50%, lower than the Euro zones 4.00%. The 75 pbs cut was the largest single day reduction since 1984, placing the call rate at it lowest level since November 2005. Accompanying statements said that the moves were in the view of a   "weakening of the economic outlook and increasing downside risks to growth." Whilst financial conditions continued to “deteriorate” and credit “tightened further”. Furthermore, the Fed did not rule out further rate cuts saying it will state in a “timely manner”. That being said, Fed member Poole was the only dissenter amongst the ten members as he “did not believe that current conditions justified policy action before the regularly scheduled meeting next week.” In U.S. share markets the NASDAQ was down by -133.69 points (-1.52%) whilst the Dow Jones was also down by -128.11 points (-1.06%). Crude oil fell by US$0.69 a barrel to US$89.88 having traded at a low of US$86.11 earlier in the session.

The Euro (EUR) rallied on the 75 bps cut by the Feds, ensuring that the Euro traded at its highest level in two months as U.S. fixed-income assets became less attractive to international investors. Overall the EURUSD traded with a low of 1.4366 and a high of 1.4645 before closing the day at 1.4610 in the New York session. PMI data both services and manufacturing are released out of the EU on Wednesday. 

The Japanese Yen (JPY) saw the central bank keep its target rate at 0.5 percent today, the lowest in the industrialized world. Bank of Japan Governor Toshihiko Fukui said the bank will raise interest rates gradually as long as the economy expands. The JPY had traded at 105.63, its highest level since May 2005. The Federal Reserves surprise cut on Tuesday ensured that demand for high yielding carry trades returned, pushing the USDJPY pair higher. Overall the USDJPY traded with a low of 105.62 and a high of 107.55 before closing the day at 106.44 in the New York session.

The Sterling (GBP) extended its rally versus the dollar following the Fed emergency inter-meeting rate cut. The Sterling Pound rebounded from lows as BoE Governor King said that 2008 was expected to be a year of “above target inflation and a marked slowing in growth”, while BoE is “determined to keep inflation on track”. Overall the GBPUSD traded with a low of 1.9337 and a high of 1.9626 before closing the day at 1.9620 in the New York session. BoE minutes released today and GDP data for the fourth quarter.

The Australian Dollar (AUD) was subject to sharp sell of during the Asian session as stock prices in the region plunged across the board. However with the Fed emergency rate cut ensured the Aussie dollar firmed as high yielding currencies returned to demand. Overall the AUDUSD traded with a low of 0.8513 and a high of 0.8720 before closing the day at 0.8688 in the New York session. Focus on Wednesday morning surrounded the Aussie CPI figures which were expected add growing expectations of a RBA rate hike in the first week of February. UPDATE: Aussie CPI figures for Q4 seen at 0.9%/3.0% (forecast: 1%/2.9%; prior: 0.7%/3.3%)

The Canadian Dollar (CAD) saw the Bank of Canada, in a scheduled meeting, lower its main interest rate by a quarter points on Tuesday to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. Overall the USDCAD traded with a low of 1.0209 and a high of 1.0378 before closing the day at 1.0279 

Gold (XAU) rose after an emergency cut in U.S. borrowing costs reduced the value of the dollar, boosting the appeal of the precious metal as an alternative investment. Overall the XAU closed higher by US$10.70 an ounce to US$881.70.  

TECHNICAL COMMENTARY

Euro – 1.4645
Initial support at 1.4366 (Jan 22 low) followed by 1.4360 (Dec 24 low). Initial resistance is now located at 1.4685 (Jan 23 high) followed by 1.4710 (61.8% retracement of the 1.4922 to 1.4366 decline).
 
Yen – 106.95
Initial support is located at 105.63 (Jan 22 low) followed by 105.00 (Psychological support). Initial resistance is now at 107.59 (Jan 18 high) followed by 107.95 (Jan 16 high)
 
Pound – 1.9605
Initial support at 1.9338 (Jan 22 low) followed by 1.9309 (Mar 15 low). Initial resistance is now at 1.9645 (Jan 23 high) followed by 1.9727 (Jan 18 high)
 
Australian Dollar – 0.8730
Initial support a 0.8513 (Jan 22 low) followed by 0.8488 (Sep 19, 2007 low). Initial resistance is now at 0.8768 (50% retracement of the 0.9022 to 0.8513 decline) followed by 0.8831 (Jan 21 high)
 
Gold – 888.30
Initial support at 849.50 (Jan 22 low) followed by 845.90 (61.8% retracement of 775.50 to 914.30 advance). Initial resistance is now at 894.80 (Jan 22 high) followed by 899.75 (Jan 16 high)