Dollar rose broadly against majors on surprising data and lower expectations for ECB rate increase

The Dollar rose broadly and hit a 5-1/2-month high against a basket of currencies on Thursday, bolstered by a surprise rise in June Home sales and diminished expectations for euro zone interest rate increases. European Central Bank President Jean-Claude Trichet, in remarks after the bank held rates at 4.25%, said he expects economic growth in the euro zone to weaken substantially this year, even as he sees inflation remaining above the ECB's target. Following his comments, investors unwound bets for ECB interest rate increases this year. Further pressuring the Dollar was an increase in Crude oil by 0.94% to 119.92 per barrel after falling to a three-month low 117.14 on Wednesday.
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The Dollar rose broadly and hit a 5-1/2-month high against a basket of currencies on Thursday, bolstered by a surprise rise in June Home sales and diminished expectations for euro zone interest rate increases.

The gain in pending home sales offset a bleak US jobless claims report, supporting a growing view that the current housing slowdown may be nearing a bottom. The data backed expectations of US rate hikes this year, which has fueled a rebound in the Dollar over the past two weeks.

In contrast, European Central Bank President Jean-Claude Trichet, in remarks after the bank held rates at 4.25%, said he expects economic growth in the euro zone to weaken substantially this year, even as he sees inflation remaining above the ECB's target. Following his comments, investors unwound bets for ECB interest rate increases this year, limiting the Euro's appeal to global investors.

EurUsd fell to a seven-week low at 1.5314, down 0.71%. UsdChf rose 0.33% to 1.0624. UsdJpy was 0.14% lower at 109.34. GbpUsd went 0.23% lower to 1.9435, an eight-week low as the Bank of England held rates steady at 5.0 percent as expected.

Further pressuring the Dollar was an increase in Crude oil by 0.94% to 119.92 per barrel after falling to a three-month low 117.14 on Wednesday.





Today's Key Issues (time in GMT):


00:00 USD Beijing Olympic Games start today
04:30 JPY July Bankruptcies +3.6% vs +2.6% (MoM)
04:30 JPY July Bankruptcies +12.9% vs +11.7% (YoY)
05:45 CHF July Unemployment rate adj. 2.5% vs 2.5%
11:00 CAD July Employment change 5k vs -5k
12:30 USD Q2 Labor costs, prelim. 1.5% vs 2.2%
12:30 USD Q2 Productivity prelim. 2.5% vs 2.6%
14:00 USD June Wholesale inventories 0.6% vs 0.8%
The Risk Today:

EurUsd:
Market dropped to 1.5310 low yesterday breaking below last consolidation range 1.5400 – 1.5800. Initial strong support holds 1.5304 13th June low. On the upside, only a return over 1.5500 will put key initial resistance 1.6000 into focus. A break up there would open the way to Trendline resistance 1.6200. Minor support holds 1.5146 5th March low.


GbpUsd:
Cable hit 2.0158 high 3-weeks ago and 1.9421 low yesterday. Key level holds 2.0100 resistance. On the downside, Monday break below 1.9649 support open the 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. A break there will put also 1.9183 5th March low.


UsdJpy:
Last two-week recovery pushed the market up to 109.88 high on Wednesday. The last break of 108.59 former resistance put focus on 110.10 strong resistance (Trendline). Further advance would open the way toward 111.92 early January high. On the downside, a return below 108.59 former resistance will undermine the current advance. Profit taking might bring back down to 105 level and may open the way toward 102.73 support and 100 pivot point.


UsdChf:
Last two-week Dollar strength pushed over 1.0500 last week and 1.0638 high yesterday. Market may find resistance on 3-months upper trendline at 1.0766. Renewed weakness below 1.0375 would retest the 1.0000 pivot point and may open the way toward 0.9637 17th March low.



By
Jean-Claude Braha

- ACM Advanced Currency Markets, Geneva, Switzerland