NEWS / Foreign Debt

Dollar mixed as investors wait for FOMC decision

By Jean-Claude Braha - ACM Senior Trader Yesterdays News and Events: The Dollar eased last week as the market had less fresh incentives to continue the rally started earlier this month. This Dollar rally was mostly driven by block of good economic data which reduced speculation that the Fed may cut interest rates early next year. Correctional phase looks to be over now with more trader showing interest to buy Dollar back on new dips. The Fed is widely expected to hold rates at 5.25% for the third straight meeting on Tuesday and repeat warning on inflation. And many traders think the Fed may be done raising rates. Later this week, the focus will turn back to economic data with US GDP (3rd quarter) and Japanese consumer price due on Friday. Referring to this, the Bank of Japan is still expected to hold overnight rate at 0.25 till March 2007. The actual rate differential will continue to support an outflow of investment into higher-yielding currencies; in that situation, Yen will still be less favourated against other major currencies. Gbpusd remained near a two-week high up to 1.8862 after a stronger than expected GB growth data for the third quarter whish boosted expectations for GBP interest rates to be raised to 5% in November. Todays Key Issues: This early morning AUD 3rd Quarter PPI was up +1% vs 0.8% expected and previous 1.6% (QoQ) and +4% vs 3.9% expected and previous 4.5% (YoY). Are due at 12:30 GMT; CAD August Retail Sales expected 0.8% vs 1.5% and CAD Retail Sales less Autos expected 0.3% vs 0.7%. The Risk Today: Two week ago, Eurusd could only approach 1.2450 important support and went at 1.2484 low. Since then, the Euro has recovered and is likely to extend recent gains. The focus is now on 1.2660 (50% retracement of the 1.2834 to 1.2483 decline) ahead of 1.2700 (61.8% retracement). There is potential too for a climb towards 1.2750 (76.4% retracement). Look for support today at 1.2570. UsdChf failure to maintain strength above the former support 1.2640 level is likely to weigh on the USD, which may correct lower towards 1.2530 and 1.2475 (50% and 61.8% retracements of the 1.2291 to 1.2771 advance). First resistance hold last week??™s high of 1.2755. GbpUsd is set to extend its recent gains from 1.8516 (two-week low). The focus is on 1.8901 next resistance with support today at 1.8660 last Thursday low. UsdJpy near-term outlook remains bearish with potential for a test of support at 117.40. A break of this level is required to further downtrend towards 116.06 trendline. On the topside, initial resistance is 119.20 with strong resistance at the recent 119.90 high. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2880 K 1.9075 T 120.00 P 1.2800 P 1.2700 S 1.8901 S 119.90 S 1.2736 S 1.2660 M 1.8810 S 119.20 M 1.2640 M 1.2591 1.8779 118.94 1.2624 1.2570 S 1.8660 M 118.05 M 1.2570 M 1.2450 T 1.8601 P 117.40 S 1.2430 S 1.2400 S 1.8516 K 116.06 T 1.2400 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot