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Wednesday May 10, 2006 - 09:12:19 GMT
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ACM - www.ac-markets.com
FOMC today: US rates to reach 5%
By Marc Spaelti - ACM Senior Trader
Yesterdays News and Events:
The bullish trend of the Euro remained nicely in place as a new round of buyers pre-empted a probable dovish statement after the rate hike tonight. The pair traded at 1.2785 to make it a double top, this high was raised to 1.2805 this morning as early European traders joined in. USDJPY extended recent losses with a first close underneath of the 111.55 level last night and a sharp sell-off to 110.65 this morning.
The day had started with a small set-back to the euro. German Industrial Production in March unexpectedly slowed 2.4%, pulling down YoY growth to 3.7%. The Euro reacted with a dip to the 1-month trend-line at 1.2660, from where it quickly recovered, attracting a fresh wave of Euro bulls.
BOJ officials, worried about too quick of an appreciation of the YEN tried to tone down expectations of an early rate hike. Jiji news yesterday indicated a possible move as early as June but LDP’s Yamamoto stepped in to say that the BOJ was in no rush to lift rates.
Todays Key Issues:
The German Trade Balance slowed to €11Bln in March, down from €12.3Bln last month and €14.5Bln a year ago. It did nothing to stop the mood on the currency markets as the EURUSD spiked to a new high of 1.2805 shortly after the announcement.
UK March Trade Balance is due shortly at 9.30GMT, the deficit is expected to narrow to £5.9Bln from £6.5Bln in February. An hour later the BOE inflation report should give the markets some indication whether there is any risk of a change in rate policy in England, expectations are for inflation to be slightly below its target, GBP interest rates are set to remain at 4.5% a while longer.
At 6pmGMT the US April Federal Budget is thought to grow to $90Bln from $57.7Bln last month.
At 6.15GMT the FED is expected to hike interest rates to 5% at today’s FOMC meeting. The rate rise is priced in and the attention will focus on the accompanying statement, as many expect the FED to change their tone by scrapping the sentence that ‘some further policy firming may be needed’ in the future, indicating a pause after 16 consecutive 25bp rate increases.
The Risk Today:
4-H GBPUSD: Cable has made a new high above 1.87 this morning, bullish 2-week trend-line at 1.8610 this morning should hold the market going into the FOMC meeting tonight, next target to the upside is 1.8775, next medium-term resistance is up at 1.7930. Risk ending the up-move with a break at 1.86 is fairly limited, but a lower daily close should trigger a quick retracement to 1.8505.
4-H USDCHF: We’ve had the first daily close underneath of the 1.2260 key-level and the pair has extended its low to 1.2160 this morning. Minor bearish resistance at 1.2210, while underneath an extension to 1.2115 or as low as 1.2085 can be expected, but as the chart shows, there is a lot of room to correct to the upside without harming the overall bearish trend, medium-term bearish resistance lies at 1.2485. A rise back above the 1.2260 key ends the current move and with strong support expected ahead of breaking the psychological 1.20 level, look to close shorts on any dip today.
Resistance and Support:
|EURUSD ||GBPUSD ||USDJPY ||USDCHF |
|1.2930 K ||1.8930 K ||111.55 K ||1.2260 K |
|1.2885 S ||1.8820 S ||111.25 M ||1.2235 S |
|1.2825 S ||1.8775 S ||111.05 S ||1.2210 M |
|1.2800 ||1.8710 ||110.70 ||1.2170 |
|1.2755 M ||1.8680 M ||110.50 M ||1.2160 S |
|1.2715 T ||1.8600 S ||109.90 S ||1.2115 M |
|1.2665 S ||1.8550 K ||109.20 K ||1.2085 K |
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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