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Monday December 18, 2006 - 10:12:18 GMT
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ACM - www.ac-markets.com
Dollar gains as investors took profit on Euro after a light reading of US inflation.
By Jean-Claude Braha - ACM Senior Trader
Yesterdays News and Events:
The Dollar posted gains on Friday as investors took profits on the Euroâ€™s recent rally. Against major currencies, the Dollar did close a second consecutive weekly gain; having risen last week as the most recent US data have generally suggested that the economy may not need an interest rate cut from the Federal Reserve in early 2007. Both US headline and core consumer prices were unchanged in November would seem to suggest the Fed was right that inflation would moderate without the need for more rate hikes. Consensus was 0.2% for both headline and core. Despite being unchanged on the month, unfavorable base effects raised the annual headline inflation rate up to 2.0%, from 1.3%. However, core inflation fell to 2.6%, from 2.7%, although that still leaves it above the Fed's comfort zone. With that being the case and labor market conditions still tight the Fed is unlikely to drop its tightening bias or even cut rates any time despite these encouraging figures. For now, the market is once again pricing two rate cuts from the Fed by mid-2007 and investors are expecting lower interest rates in the longer-term. The Yen was also under pressure against other crosses after an upbeat read of Japanese manufacturing sector sentiment did not reiterate expectations for the Bank of Japan to raise rates to 0.5% next year. UsdJpy was up 0.42% at 118.17. EurUsd was -0.56% at 1.3081 well away from intraday high 1.3186 after technical profit taking from institutional investors. GbpUsd fell â€“0.5% to 1.9524 from its intraday highest 1.9665. UsdChf rose 0.6% to 1.2214 near 38.2% retracement of 1.2772 to 1.1880 2-month decline.
Todays Key Issues:
Euro zone October Trade Balance due at 10:00 GMT is expected 2.4B vs 2B. NZD NBNZ December Business Confidence due at 12:00 GMT was previously -14. US 3Q Current Account Balance due at 13:30 GMT is expected $-225B vs $-218.4B. CAD October International Securities Transactions due at 13:30 GMT is expected 0.5B vs -3.08B. US December NAHB housing market index due at 18:00 GMT is expected 34 vs 33. JPY 19th December is due Bank of Japan Rate Decision expected unchanged at 0.25%.
The Risk Today:
EurUsd was volatile on last Friday and the breach of 1.3130 pivot support will expose further downside, while any near term recovery may be capped below last Thursday's 1.3254 high. Only a push above this barrier would offset downward pressures toward the 1.3030 (38.2% retracement of the 1.2483-1.3368 rise). UsdChf is heading at 1.2220 resistance (38.2% retracement of the 1.2772-1.1880 decline) and is reading to search the next barrier at 1.2290, which is followed by 1.2326 (50% retracement of 1.2772-1.1880). Minor support is at 1.2118, a recent last Friday low. GbpUsd continues to hold above support from last Monday's 1.9467 low followed by 1.9462 (38.2% retracement of the 1.8835-1.9849 rise). Only a break there would offset the possibility for a run above last Wednesday's 1.9730 high followed by the 1.9850 trend high from early December. UsdJpy recent rise is heading to its strong resistance at 118.60 (76.4% retracement). Only a break of support from last Friday's 117.44 low would negate upward tone.
Resistance and Support:
|EURUSD ||GBPUSD ||USDJPY ||USDCHF |
|1.3400 P ||1.9900 S ||119.90 T ||1.2346 K |
|1.3370 S ||1.9850 P ||118.60 S ||1.2326 S |
|1.3130 P ||1.9730 M ||117.90 M ||1.2220 S |
|1.3103 ||1.9565 ||117.88 ||1.2190 |
|1.3085 S ||1.9550 S ||117.44 M ||1.2118 M |
|1.3030 S ||1.9462 S ||116.60 M ||1.1920 P |
|1.2941 M ||1.9340 S ||114.00 S ||1.1880 T |
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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