US financial sector worries. Bank of England left rates unchanged

The Dollar fell against the Euro on Thursday, dragged down by persistent worries over the health of US financial sector, as shares and bonds of the country's two mortgage finance giants tumbled on capitalization fears. The yield spread premium for the larger Fannie Mae rose to its highest since before the Fed's bailout of US Investment bank Bear Stearns in March. Investors were slightly reassured by comments by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson in testimony to Congress that they were doing everything possible to restore calm to financial markets. Bank of England held interest rates steady at 5% on Thursday, but analysts say rates will have to fall, making the GBP less attractive.
News and Events:


The Dollar fell against the Euro on Thursday, dragged down by persistent worries over the health of US financial sector, as shares and bonds of the country's two mortgage finance giants tumbled on capitalization fears.

Shares in Fannie Mae and Freddie Mac plunged to their lowest levels since 1991 on Thursday, severely limiting the ability to raise the capital needed to purchase home loans and hold down mortgage rates. The yield spread premium for the larger Fannie Mae rose to its highest since before the Fed's bailout of US Investment bank Bear Stearns in March. Investors were slightly reassured by comments by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson in testimony to Congress that they were doing everything possible to restore calm to financial markets.

EurUsd climbed to 1.5801 session high and was last trading at 1.5788, up 0.36% on the day. UsdJpy rose 0.11% to 107.01 while UsdChf fell 0.14% to 1.0277. The Dollar firmed against the Japanese Yen. This was despite US crude oil futures jumping $5.60 to $141.65 per barrel. During periods of uncertainty, low yielding currencies such as the Yen and the Swiss franc tend to attract a flight-to-quality bid as the low interest rates reflect the capital surplus of their respective countries. Sterling struggled against the Dollar and Euro after the Bank of England held interest rates steady at 5% on Thursday, but analysts say rates will have to fall, making the GBP less attractive. GbpUsd last traded at 1.9773, down 0.2%, while the EurGbp rose 0.54% to 0.7985.





Today's Key Issues (time in GMT):


06:00 EUR June Germany Wholesale prices index 0.9% vs 1.4% (MoM)
06:00 EUR June Germany Wholesale prices index 8.9% vs 8.1% (YoY)
11:00 CAD June Unemployment rate 6.1% vs 6.1%
12:30 USD June Export prices 0.4% vs 0.3%
12:30 USD June Import prices 1.9% vs 2.3%
12:30 USD June Import prices 1.9% vs 2.3%
12:30 USD May Trade Balance -$62.5B vs -$60.9B
12:30 CAD May New Housing price index 0.1% vs 0.0%
12:30 CAD May Trade Balance Cad 5.3B vs 5.11B
13:55 USD July University of Michigan conditions prel 65.6 vs 67.6
13:55 USD July University of Michigan expectations prel 48 vs 49.2
13:55 USD July University of Michigan sentiment prel 55.5 vs 56.4
18:00 USD June Federal Budget $ 27.5B vs 27.48B
The Risk Today:

EurUsd:
Market hit 1.5910 high last week but return in consolidation 1.5400-1.5800 range. Initial resistance holds 1.5844 June 9th high. Strong resistance holds 1.5910 3rd July high. A break up there would reopen the way up to 1.6000 Pivot point resistance ahead of key resistance 1.6200 market target. On the downtrend, weakness below 1.5400 will put the current light 2-month uptrend on hold. This may open way down to 1.5000 key level. Strong Support holds 1.5304 13th June low.


GbpUsd:
Cable posted its 5th consecutive down session. On the downside, a return below 1.9600 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Strong support holds 1.9363 20th February and 14th May low. Initial support holds 1.9649 Monday low. Long term trading range support is 1.9400 – 2.0000.


UsdJpy:
Current 3-month up- trend will extend till 108.59 strong resistance and 16th June high. Further advance over mid-June 108.59 would put 110.10 strong resistance (Trendline) into focus and mid January double top ahead of 111.92 early January high. Renewed and expected profit taking would bring the market below 105 and maybe back into 100 – 104 consolidation trading range. Strong support holds 105.78 3rd July low.


UsdChf:
Market recovered from last week 1.0112 low. Strong support holds 1.0148 June 9th low. Further support holds 1.0112 Thursday low. Recent confirmation over 1.0200 brought back 1.0200 – 1.0600 consolidation range. Renewed (but unlikely) weakness below 1.0000 pivot point may open the way toward 0.9637 17th March low. June 13th 1.0541 high holds initial resistance.



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