Forex Market Issues and Risks
Group of Seven may address Dollar weakness at next meeting
News and Events:
The Dollar gained in quiet trade on Monday against most major currencies as Investors reassessed risk and bet that Friday's sell-off on a US payrolls report was overdone. September job growth was the best since May and eased concern about an imminent US recession, but some Dealers sold the Dollar on concern the economy is not growing fast enough to prevent the Federal Reserve from cutting interest rates further.
Monday's gains came as investors decided the jobs report indicated some vigor in the economy. Adding to the Dollar's strength was concern that the Group of Seven nations may address Dollar weakness at their upcoming meeting, which could hurt some investors who had been betting on the Dollar's continued decline.
Yesterday, EurUsd slipped 0.64% to 1.4047, off its record high of 1.4280 hit last week, and below its level of 1.4138 late on Friday in New York as the jobs data reduced chances that the Federal Reserve would cut interest rates this month. Traders said near-term support kicks in around 1.4030. The UsdJpy climbed to 117.39, a gain of 0.38% from 116.95 late Friday. Analysts said traders had recovered their taste for carry trades that use cheaply borrowed yen to buy higher-yield currencies. With markets in Japan and Canada closed for holidays and the US bond market also shut for Columbus Day, trade was light on Monday, leaving the Dollar near the top of rather narrow ranges.
FX Markets now see euro-zone rates on hold for the rest of 2007 after European Central Bank President Jean-Claude Trichet spoke of downside growth risks last week, and that has moved interest-rate differentials in favor of the Dollar. Futures markets are now reflecting a 44% chance of a Fed rate cut on Oct. 31, lower than the 75% priced in last Thursday (day before the jobs report).
Elsewhere, outgoing International Monetary Fund chief Rodrigo Rato said the Dollar was undervalued. Various European officials have also complained about the Dollar's decline and worried a strong Euro would undermine the euro-zone economy. Europe's finance and economy Ministers were meeting in Luxembourg on Monday and Tuesday, where they were expected to draft a unified approach to the dollar's decline heading into a G7 meeting next week. But G7 won't be able to focus on the Dollar without also addressing the value of the Chinese Yuan and Japanese Yen, two other currencies seen as undervalued
Today Key Issues:
- 08:30 UK August Trade Balance -£6.8B vs -£7.06B
- 08:30 UK August Trade Balance non-EU, -£3.98B vs -£4.48B
- 08:30 EU ECB's Trichet addresses to Monetary Policy Committee
- 10:00 GE August Industrial Production -0.2% vs 1.5% (MoM)
- 10:00 GE August Industrial Production 1.2% vs 2.6% (YoY)
- 12:15 CAD Sept Housing Starts annualized 220k vs 226.5k
- 14:00 US October IBD economic Optimism previously 48.2
- 16:00 CHF Swiss National Bank's Roth speaks about Euro
- 17:30 US Fed's Poole speaks on the Global Economy, St. Louis
- 18:00 US Minutes of September 18th FOMC Meeting
- 19:40 US Fed's Yellen speaks on the national outlook, Los Angeles
- 21:00 US Sept ABC Consumer Confidence
The Risk Today:
EurUsd hit last week all time high 1.4280, which marks initial resistance before a new extension to 1.4291 and 1.4333 strong resistance. But market reversed on Wednesday and broke down 1.4165 support, opening the way down to 1.4000 nearby support and 1.3927 where a lower development would threaten the up-trend. On a long term view, it would need a return below 1.3719 to confirm trend change.
GbpUsd hit last week 2.0494 two-month high. Cable is now narrowing between 2.0494 and 2.0278 last Thursday low. Holding below 2.0363 may open the way to further downside toward 2.0200. But it would need a drop below 2.0000 psychological level and 1.9880 support to confirm trend change. Beyond that point, 1.9821 marks strong support (76.4% retracement of 1.9652 to 2.0366 advance).
UsdJpy downtrend seems ended further to 116.21 break up. It need a confirmation over 117.13 to relieve the negative tone and open the way for further extend toward 119.06 (61.8% retracement of 123.67 to 111.60 decline). On the downside, a return below 113.39 (Sept. 11 low) would open the way toward 112.61 and a possible retest of 111.60 (August 17 low). Initial resistance holds 116.78 yesterday high.
UsdChf rebounded from 1.1622 early October low and is testing today 1.1816 former key support and initial resistance. On the actual uptrend, a recovery beyond 1.1923 and 1.1962 is needed to relieve the actual bear threat. However, renewed weakness may reopen the way toward 1.1680 key support. A break there will extend the downtrend toward 1.1500 psychological support and possibly 1.1484 (2005 March 14 low)..
| EURUSD | GBPUSD | USDJPY | USDCHF | ||||
| 1.4500 | K | 2.0660 | S | 123.67 | T | 1.2133 | T |
| 1.4333 | S | 2.0500 | K | 119.06 | T | 1.2000 | S |
| 1.4282 | M | 2.0465 | S | 117.63 | M | 1.1923 | S |
| 1.4045 | 2.0345 | 117.30 | 1.1865 | ||||
| 1.4000 | S | 2.0200 | S | 116.60 | M | 1.1680 | K |
| 1.3827 | S | 2.0000 | P | 113.39 | S | 1.1500 | P |
| 1.3719 | P | 1.9880 | S | 111.60 | T | 1.1484 | S |
| S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot | |||||||
By: ACM Forex
