US Jobs report lowered chances for an aggressive Fed rate cut

The Dollar rose against the Yen on Friday as a slightly above-forecast Jobs report eased some concerns that a housing slump had spread to the broad economy and reduced chances of an aggressive Fed interest rate cut. Rate futures are factoring in a roughly 41% chance of a 50-basis-points interest-rate cut from 47% on Thursday and 65% a week ago. A quarter-point reduction has been fully priced in. The Euro got a boost on Thursday, recovering from three-week lows versus the Dollar, after Trichet warned of strong upward pressure on inflation and said some euro zone central bankers had wanted a rate rise from the current 4%.


News and Events:
The Dollar rose against the Yen on Friday as a slightly above-forecast Jobs report eased some concerns that a housing slump had spread to the broad economy and reduced chances of an aggressive Fed interest rate cut. Analysts said it was now certain the Federal Reserve would lower its benchmark overnight lending rate by only 25bp to 4.25% next Tuesday rather than 50bp as the economy was not falling off a cliff. While a quarter-point easing would still reduce the allure of Dollar-denominated assets, analysts said a deeper cut would cause investors to worry more about the economy's prospects than they already were. Rate futures are factoring in a roughly 41% chance of a 50-basis-points interest-rate cut from 47% on Thursday and 65% a week ago. A quarter-point reduction has been fully priced in. On Friday, UsdJpy traded 0.29% higher at 111.69. EurUsd, which continued to draw support from European Central Bank President Jean-Claude Trichet's hawkish inflation comments on Thursday, traded unchanged at 1.4657 after a brief drop down to 1.4599 following the payrolls data. EurJpy rose 0.27% to 163.70. Volumes were light on Friday with some traders reluctant to take positions into the weekend and ahead of the Federal Open Market Committee meeting. The Euro got a boost on Thursday, recovering from three-week lows versus the Dollar, after Trichet warned of strong upward pressure on inflation and said some euro zone central bankers had wanted a rate rise from the current 4%. A surprisingly strong Canadian jobs report boosted the Canadian dollar against the US currency, recouping some losses triggered by an unexpected interest rate cut this week. UsdCad last traded down 0.33% at 1.0053.




Today's Key Issues (time in GMT):

08:30 DKK October Trade Balance previous Dkk 2.7b
08:30 DKK October Inflation previous 1.8% (YoY)
09:00 NOK November Consumer Price Index previous -0.2% (YoY)
09:30 EUR December Sentix Index 12 vs 14
09:30 GBP November PPI output 0.4% vs 0.6% (MoM)
09:30 GBP November PPI output 4.2% vs 3.8% (YoY)
09:30 GBP November PPI Core output 0.2% vs 0.3% (MoM)
09:30 GBP November PPI Core output 2.3% vs 2.3% (YoY)
13:15 CAD November House Starts 222k vs 219.5 annualized
15:00 USD October Pending Home Sales -1% vs 0.2%
21:45 NZD Q3 Terms of trade – import 2% vs -1.7%
21:45 NZD Q3 Terms of trade – import 5% vs -1.2%



The Risk Today:

EurUsd Euro pulled back from Friday 23rd November record high 1.4967. Breaking down the 4-month Trendline support, it might return down to two weeks ago support on 1.4520. On the downside, only a return below 1.4500 and further drop to 1.4280 former resistance would threaten the last 4-month uptrend. This could open the way down toward 1.4000 nearby support and 1.4125 trendline support. Initial resistance holds 1.4723 former support.

GbpUsd Cable corrected Thursday down to 2.0181 testing the 2.0200 strong support. On the downside, renewed pressure might push below 2.0200 and toward 2.0000 psychological levels to complete the downtrend. On the upside, 2.0354 former support marks the resistance before 2.0833 Nov. 28th high and 2.0588 Wednesday high.

UsdJpy Downtrend has end with November. Friday 30th November break up 110 level had put 114 into focus. This may open the way toward 117.63 resistance. On the downtrend, supports hold 106.50 June 2005 low and 101.68 January 2005 low. Initial support holds 110. Initial resistance holds 111.46 yesterday high.

UsdChf Downtrend came to an end further to rebound on 1.0888 23rd November low. Market had found support on 1.1000 key level. Initial resistance holds 1.1353 yesterday high. It would also need a return over 1.1500 and 1.1640 level to relieve 6month bear threat. Initial support holds 1.1154 last week low.


Resistance and Support:




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