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Thursday April 5, 2007 - 08:59:46 GMT
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ACM - www.ac-markets.com
Will Bank of England raise interest?
By Jean-Claude Braha - ACM Senior Trader
News and Events:
The Sterling held near a three-month high against the Dollar on speculation Bank of England may increase borrowing costs at their policy-making meeting today. The Sterling has risen almost 13% in the past year. Gilts (Government bonds) yield are near their highest in 2 Â½ years as signs of quicker growth and inflation led some investors to raise their bets on a UK rate increase. But most economists expect BoE policy makers to keep the benchmark rate at 5.25%. The UK Central Bank has raised interest rates three times since August to fight above-target inflation amid faster economic growth. GbpUsd was up 0.13% to 1.9759 holding below previous day intraday high 1.9824, the highest since January 24th. The Sterling consolidated against the Yen on comments that central bankers from Group of Seven nations will express concern about the Japanese currency's weakness during a meeting next week. GbpJpy closed unchanged at 234.44 from previous day advance up to 235.11. Given the UK interest rate advantage of 475 basis points over the Yen, investors tend to borrow the Yen to fund purchases of assets denominated in higher yielding currencies such as the Sterling and the New Zealand Dollar.
The US ISM non-manufacturing index dropped to a 3-year low of 52.4 in March from 54.3, consensus was 55. New Orders fell to 53.8 from 54.8 while employment dropped to 50.8 from 52.2; the lowest reading since July 2004. The ADP employment survey suggest a slightly optimistic view with a 106k increase in private non-farm payrolls which is close to the consensus of 135k for the official figures due Friday.
EurUsd was up 0.38% to 1.3375 while UsdChf was down -0.27% to 1.2195 correcting from previous day 0.64% advance to 1.2228. EurChf jumped to a seven years record high at 1.6311 as rising equity markets prompted investors to seek higher yielding assets and on speculation Switzerland will not follow Euro-zone in raising interest rates. Swiss franc decline will be limited by intervention from Swiss National Bank which could buy its currency if the CHF weakness threatens to push inflation above its target of 2%.
Today's Key Issues:
GB 08:30 GMT: February Industrial Production 0.2% vs 0.1% (MoM) and 0.7% vs 0.4% (YoY), Manufacturing Production 0.3% vs -0.2% (MoM) and 2.2% vs 2% (YoY).
GB 11:00 GMT: Bank of England Rate Decision expected 5.25% unchanged
CAD 11:00 GMT: March Unemployment Rage 6.1% unchanged
US 12:30 GMT: Initial Jobless Claims (March 31) previously 308k
CAD 14:00 GMT: March Ivey Purchasing managers Index 61 vs 60.5
The Risk Today:
EurUsd continues to hold above support 1.3260 low, and only a break there would damage the case for another leg higher and open the way toward 1.3200 (61.8% retracement of the 1.3072-1.3412 rally). Focus remains on the 1.3411 trend high from previous week, with strong resistance at the 1.3480 reaction March 11 high.
GbpUsd is holding above initial support 1.9750 (former resistance). Further advance from the last week rebound on 1.9546 might clear the 1.9850 pivot point and extend it with little resistance until the 1.9917 January trend high. The next upside trigger and minor resistance is 1.9824. Initial support is 1.9750
UsdJpy consolidation phase is over and it has taken on a more positive bias, pushing beyond the 118.50 to 119.09 yesterday high. Sustained up-move above the top end of this area would confirm a bullish resolution towards 119.5 (61.8% retracement of 122.20 to 115.15 decline), ahead of 120.00 round number resistance. On the downside, it will take a break of last Friday's 117.17 to diminish the bullish trend.
UsdChf is holding below resistance at 1.2230 and last Friday's high 1.2240. But it will take a break of the 1.2080 to mark a return of the broader bear trend and open the door toward its 1.2030. Lower than that, there is little support till the 1.1881 early December low. On the topside, a break of 1.2230 would instead reinstate a short-term bullish theme and open focus on 1.2356 early March high.
Resistance and Support:
|EURUSD ||GBPUSD ||USDJPY ||USDCHF |
|1.3666 T ||2.0100 T ||119.90 K ||1.2342 S |
|1.3480 S ||1.9917 T ||118.88 M ||1.2263 M |
|1.3411 M ||1.9850 P ||118.50 S ||1.2230 S |
|1.3365 ||1.9760 ||118.60 ||1.2200 |
|1.3260 S ||1.9750 S ||117.17 M ||1.2030 S |
|1.3200 S ||1.9675 M ||116.76 S ||1.1984 P |
|1.3180 S ||1.9188 S ||115.15 T ||1.1881 T |
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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