NEWS / Monetary Policy

Dollar rises as Market bet on inflation warning

By Jean-Claude Braha - ACM Senior Trader Yesterdays News and Events: The Dollar gained on Monday as investors and traders are expecting the Federal Reserve to repeat its concerns about US inflation when it announces its interest rate decision on Wednesday. The FOMC (Federal Open Market Committee) is widely expected to hold interest rate unchanged at 5.25% for the third straight time at the end of its two day meeting. But the Fed??™ statement remains the markets??™ focus of attention; most analysts expect the Fed to reiterate its concern about rising inflationary pressures. Further to last week Dollar weakness; speculators have been reducing their short Dollar position ahead of FOMC. Lately, the Dollar has been also helped by lower US oil Futures at $ 58.42 per barrel on Monday. On the interest rate front, a Reuter??™s poll showed that 14 out of 21 US primary bond dealers said the Fed??™s next move would be a rate cut, even with different time views. Yesterday CAD August Retail Sales came out 1% vs previous 1.5% and CAD Retail Sales less Autos expected 0.4% vs previous 0.7%. Todays Key Issues: Early this morning, French September Consumer Spending came out -2.7% vs 1.4% expected and previous 3.3% (MoM). Due at 9:00 GMT, Euro-zone August Industrial new Orders is expected 2.3% vs 1.8% (MoM) and 10.1% vs 9.7% (YoY). At same time, GB October CBI Industrial Trends Survey expected -5 unchanged. Only less impact US news due at 14:00 GMT, Richmond Fed Manufacturing Index October expected 9 unchanged. NZD Consumer Prices Index (3Q) due at 21:45 GMT is expected 0.8% vs 1.5%. The Risk Today: EURUSD could maintain some pressure on 1.2530 low and possibly drop down to the former 1.2630 pivot level. Failure to step over former support 1.2570 would confirm the view that recent gains were corrective and pave the way for a new down trend 1.2450 support. On the other side, only an advance over 1.2660 would erase this negative tone. USDCHF continues to push higher around 1.2700 after bouncing on 1.2560 last week (50% retracement of 1.2291 to 1.2771). Advance could extend to 1.2771, last week high and targeting high end 1.2930 (76.4% retracement of the 1.3241 to 1.1919). GBPUSD remains vulnerable, following Monday's break of last Friday's 1.8755 low, and it suggest a possible larger drop towards 1.8660 and therefore 1.8516 Key level. USDJPY's sell-off last week held above minor support 118.05 and stronger 117.40 support from early October. It just step over 119.20 short term support and may continue advance on 119.90 ??“ 120 technical and psychological level. This would open the way to 121.40 (last Dec trend). Maintain a bullish near-term sentiment above 118.05. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2880 K 1.9075 T 121.40 T 1.2930 T 1.2700 S 1.8901 S 120.00 P 1.2800 P 1.2660 M 1.8810 S 119.90 S 1.2736 S 1.2534 1.8687 119.52 1.2697 1.2485 M 1.8660 M 119.20 M 1.2640 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