BoE and ECB left rates unchanged...

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Friday February 9, 2007 - 09:54:04 GMT
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BoE and ECB left rates unchanged...

By Jean-Claude Braha - ACM Senior Trader

News and Events:

The Euro advanced against most currencies on Thursday after investors interpreted remarks from the head of the European Central Bank as signaling a rise in benchmark interest rates in March. The focus of the day was the Euro after the ECB left rates unchanged at 3.5% as expected, but ECB President Trichet repeated the Phrase “strong vigilance” to describe how the bank will monitor Euro-zone inflation. “Strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialize”, ECB President told at news conference. The ECB has used the word “vigilance” in its statements every month before the six rate increases delivered since December 2005. Asked if the markets should understand the phrase to mean a rate rise in March, Trichet said: “it speaks for itself.” Trichet managed to give a very hawkish stance and it may be a sign for a rate hike next month. Analysts said the ECB’s statement confirmed market expectations of a 25 basis-point rate rise at the upcoming March meeting and reinforced expectations of a further rate rise later this spring. It also created sentiments of an additional ECB rate hike during the second half of the year. In a accommodative monetary policy, Euro-zone interest rates have been relatively low, but the ECB has been working to combat inflation by gradually raising rates. British currency has been under pressure after the Bank of England held benchmark rates steady at 5.25%. Sterling fell after the decision as there ware some expectations for a rate rise following the bank’s surprise increase in January. GbpUsd traded down -0.64% at 1.9586 and GbpJpy also fell -0.18% at 237.28 after hitting intraday high of 238.90. EurUsd was up 0.12% at 1.3038. The Dollar did strengthen against the Yen ahead of G7 meeting of finance ministers after earlier speculation that the Yen’s weakness might be a focus of the meeting. The Yen traded lower across the board; UsdJpy was up 0.46% at 121.16 while EurJpy was up 0.59% at 127.96. Euro also strengthened against CHF, up to 1.6248 +0.58%.

Today's Key Issues:

G7 Meeting of Finance Ministers and Central Bankers in Germany

GB 09:30 GMT: December Visible Trade Balance GBP -6.9B vs -7.19B
CHF 10:15 GMT: Swiss national Bank Blattner speaks in Basel
Euro 11:00 GMT: December Euro-zone OECD Leading Indicator previously 109.4
CAD 12:00 GMT: January Employment change 10k to 25k vs 61.6k and January unemployment rate expected 6.1% to 6.2% vs 6.1%
US 14:00 GMT: Fed’s Poole speaks to Management Association St-Louis

The Risk Today:

EurUsd has been stuck in the 1.2865 to 1.3075 trading range for a month now, with Thursday's action nearing the top end. Violation of the upside would bring resistance at 1.3130 in focus (61.8% retracement of the 1.3298-1.2865 decline). Initial support still holds 1.2865.

GbpUsd formed resistance at 1.9750 (61.8% retracement of the 1.9917-1.9482 decline), where a break is required confirm a renewed bullish trend. Last week's 1.9482 marks key support where a break would clearly damage the growing bull trend recovered from last week 1.9482 lows.

UsdJpy The recent recovery from 120 low has pushed market toward 121.40 resistance (61.8% retracement of the 122.20-120.10 decline); further strength would open the door toward the 122.20 trend high from last week. On the downside, initial support has been defined at 120.20 over last year former psychological resistance.

UsdChf support lies at 1.2376 late January low. A break of this level is required undermine the bull trend and also signal a reversal and target 1.2309 (38.2% retracement of 1.1881-1.2574 advance). While it holds, the trend remains up with Monday's 1.2520 high marking initial resistance ahead of the key 1.2550 resistance.

Resistance and Support:

EURUSD GBPUSD USDJPY USDCHF

1.3290 T 1.9850 P 123.25 K 1.2770 T

1.3130 P 1.9750 S 122.20 S 1.2550 S

1.3050 S 1.9512 S 121.40 T 1.2520 M

1.3010 1.9510 121.40 1.2495

1.2900 T 1.9482 K 120.20 S 1.2376 S

1.2866 K 1.9315 S 119.90 K 1.2309 M

1.2820 S 1.9260 M 119.23 S 1.2260 S

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

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Friday February 9, 2007 - 09:54:04 GMT ACM - www.ac-markets.com