The Dollar strong ahead of interest rate reduction in Eurozone and Eangland
The US dollar moved higher against the basket of major currencies as just yen succeed to rise. The euro traded lower versus the US dollar as the single currency tested bids around the 1.2790 level. Improved risk appetite has led to the common currency to retrace some of its sell-offs during the past weeks but the pair gave back some of those gains Wednesday. The European Central Bank is expected to reduce interest rates by 50bps for the second time in two months today. In US, traders are trying to determine how President-elect Obama will impact the financial markets and the US dollar. The yen appreciated sharply against the US dollar as the greenback tested bids around the 99.25. The yen has strong correlation with US financial market and succeed to rise on a lowering of stock prices. Many economists now expect Japan’s economy will enter a technical recession in the third quarter. Bank of Japan cut rates last week and reduced its GDP growth forecasts for the fiscal year to March 2009, now predicting virtually no growth at all. The euro also weakened vs the yen as the single currency tested bids around the 127.20. The British pound came off against the US dollar as cable tested bids around the 1.5750 level. Bank of England’s Monetary Policy Committee could reduce its headline repo rate by as much as 100bps today with most traders focusing on a 75bps reduction.
EUR/USD
The short term picture is natural as the euro trade in wide range trying to go closer and test the key resistance level at 1.3320, which is 61.8% retracement of the 1.1640-1.6035. So far first target will be the resistance at the 1.3100, followed by the key 1.3320. A successful break of 1.3320 will give us a signal that the positive mid-term trend is resumed and will target 1.3680. On the contrary, the negative risk remains and on the downside support is seen at 1.2500, followed by 1.2340 and the psychological 1.2000.
EUR/USD (chart, table)
USD/JPY
The short term picture turned to negative as the pair traded below the resistance level at 98.70, which is 23.6% retracement of the 124.12-90.90 drop. If the level is overcome again form upside the next key resistance level will be 103.50, which is 38.2% retracement of the mentioned drop. A successful test of 103.50 will give us a signal that the mid-term uptrend has resumed. On the downside support is seen at 95.75, followed by 90.85 and 85.00.
USD/JPY (chart, table)
GBP/USD
The short term picture remains negative. The pair consolidates in narrow range trying to find the way for back test of resistance at 1.6650, which is 23.6% retracement of the 2.1150- 1.5266 drop. If broken successfully, next targets will be 1.6900 and the key level at 1.7510, which is 38.2% retracement of the mentioned drop. The downside risk remains, as far as, the pair holds below 1.7510, and its overcoming will give us a signal the mid-term positive trend has resumed. On the downside support is seen at 1.5600, followed by 1.5420 and 1.5270.
GBP/USD (chart, table)
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06.11.2008 FX daily review.pdf, 603 Kb
