Sterling dropped to a 3-month low as Forex traders are pricing in further BoE rate cut

News and Events:
The Dollar rose against the Euro and surged to a three-month peak against Sterling on Wednesday amid signs that financial market turmoil was starting to threaten economic growth beyond US borders. The Euro was hit after an index of German business sentiment came in close to a one-year low, prompting investors to increase year-end Dollar buying.
Large institutional investors also helped pushed Sterling below the 2.0000 for the first time since September, with traders pricing in another interest rate cut after minutes from the Bank of England's last meeting this month showed unanimous support for a cut to 5.5%. Volumes were typically light ahead of year-end and Forex traders said that exaggerated some of the price action. EurUsd was 0.25% weaker at 1.4382 having felt earlier as low as 1.4325. GbpUsd hit a three-month low at 1.9928 before recovering to 1.9961, still down 1.02% from Tuesday. UsdJpy last traded at 113.30, unchanged on the day, after dipping down to 112.74.
Dollar buyers were also cheered by Morgan Stanley's announcement of a $5 billion investment from China, which drew attention away from write downs that caused the bank to post a net loss of $3.59 billion in the fourth quarter.
The trading ranks are likely to think out further as the week goes on, but those who remain at their desks will get weekly jobless claims and the Philadelphia Fed's manufacturing index to scour for clues about US economic health.
The weak business confidence reading in Germany came at a time when inflationary pressures were rising in the euro zone, suggesting that the European Central Bank may have a tough time raising rates any time soon, analyst said. Such a situation could help the Dollar regain further lost ground against the Euro, with analysts less optimistic that the Fed would aggressively cut interest rates next year after inflation data last week pointed to hidden price pressures. The Bank of Canada and Bank of England, by contrast, have cut rates this year and could cut again in early 2008.




Today's Key Issues (time in GMT):

00:00 JPY BoJ rate Decision 0.5% vs 0.5%
07:45 CHF November Trade Balance CHF 1.37B vs 1.39B
09:30 GBP Q3 Gross Domestic Product 0.7% vs 0.7% (QoQ)
09:30 GBP Q3 Gross Domestic Product 3.2% vs 3.2% (YoY)
09:30 GBP Q3 Current Account £-11.5B vs -9.05B
09:30 GBP November Public Sector Net Borrowing £ 10B vs £ -1B
09:30 GBP November PSNCR £ 8B vs £ -4.8B
09:30 GBP November M4 Lending £ 15.7B vs 19.5B
09:30 GBP November BSA Mortgage Approvals £ 3.985B
13:30 USD Q3 GDP annualized 4.9% vs 4.9%
13:30 USD Q3 GDP Price Index 0.9% vs 0.9%
13:30 USD Q3 GDP PCE Prices 1.7% vs 1.7%
13:30 USD Dec. 15th, Initial Jobless Claims 335k vs 333k
15:00 USD November Leading Indicators -0.3% vs -0.5%
17:00 USD December Philadelphia Fed Business Index 6 vs 8.2
21:45 NZD Q3 Gross Domestic Product 0.4% vs 0.7% (QoQ)
21:45 NZD Q3 Gross Domestic Product 3.2% vs 3.2% (YoY)



The Risk Today:

EurUsd Euro pulled back from Friday 23rd November record high 1.4967. It broke last week the three weeks support 1.4520. On the downside, a return below 1.4500 opened the way toward 1.4280 former resistance. This could put into focus 1.4000 nearby support and 1.4125 trendline support. Initial resistance holds 1.4520 former support.

GbpUsd Following recent break of 2.0200 support (23.8% retracement) it dropped below 2.0000 psychological and key level. Further pressure might open the way down to 1.9590 (50% retracement 1.7049 – 2.1161). On the upside, 2.0000 former support marks now the initial resistance in front of 2.0200 and 2.0577 Dec 12th high. Yesterday low 1.9928 holds initial support.

UsdJpy Uptrend started end November hit 113.61 last Friday. This recent move up put 114 into focus. Further strength may open the way toward 117.63 resistance. On the downtrend, initial support holds 110, before 107.22 trend November 26th low. Initial resistance holds 113.61 Friday high.

UsdChf Uptrend from 1.0888 23rd November low remains strong. Market had found support on 1.1327 end November high. Initial resistance holds 1.1547 Friday high. It would also need a return over 1.1640 level to relieve 6 months bear threat. Initial support holds 1.1402 Friday low.


Resistance and Support:




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