NEWS / Monetary Policy

Dollar is under pressure with concern of China reserves.

By Jean-Claude Braha - ACM Senior Trader Yesterdays News and Events: The Dollar went down against the Euro and Sterling on Friday because of China??™s plan to diversify its $1 trillion in Forex reserves. People??™s Bank of China Governor Zhou Xiaochuan drove direction of the Currencies Market for the second day. He spoke again in Frankfurt on Friday that China could diversify its assets across different currencies and investments. Analysts noted that China has revealed such plan before, but diversification to other currencies will hurt the Dollar, which makes 70% of its reserves. Latest days Zhou??™s comment gave investors perfect excuse to sell the Dollar especially as interest spread is now smaller and helped demand for European currencies as Investors are always looking for higher yield. EurUsd rose to a 2 1/2-month high at 1.2901 and GbpUsd was up at 1.9180, the 18-month high. The Dollar and other currencies came under pressure against the Yen overnight after the Bank of Japan Governor Toshihiko Fukui said he was concerned about a possible closing of carry trades, in which investors borrow the low-yielding Japanese currency and buy higher-yielding as Euro, Sterling and Dollar. GbpJpy fell to an eight-year low last week at 225.30. Last week, EurJpy was up to 151.48 an 8-year high. Todays Key Issues: Light announcement day; ECB??™s Trichet and EU??™s Mc Creevy speak on Payment Systems at 13:15 GMT. US October Monthly Budget Statement due at 19:00 GMT is expected -$49B vs -$47.4B. JPN Gross Domestic Product (3Q) due at 23:50 GMT is expected 0.2% unchanged and 1% unchanged annualized. The Risk Today: EURUSD starts the week on a firmer note and remains bullish above 1.2750. As long as this continues to provide a floor even with a possible set back approaching the resistances of 1.2941 and 1.2981; the sentiment remains positive. USDCHF maintains a bearish tone for now having broken down 1.2400 (76.4% retracement of the 1.2291 to 1.2771 advance). The focus down is on 1.2290 with scope too for 1.2185. Intraday resistance cuts in at Wednesday's 1.2525 high, but we must see a break of 1.2580 to end this latest bear development. GBPUSD had tested key resistance 1.9144 high, with further confirmation it could target 1.9220 trendline resistance. Next focus will be 1.9330. For now, the positive outlook remains intact with immediate support at Friday's 1.9060 low. A turn down, lower than 1.8950, will end this positive trend. USDJPY targets 116.60 early Nov low. Intraday resistance cuts in at 118. Next resistance 118.50 is active again and the negative tone should prevail below it. Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2981 S 1.9220 T 120.00 P 1.2800 T 1.2941 T 1.9144 K 119.90 S 1.2707 S 1.2880 S 1.9125 M 118.50 S 1.2525 M 1.2857 1.9113 117.43 1.2380 1.2750 M 1.9060 M 117.25 M 1.2290 S 1.2620 S 1.8950 S 116.60 S 1.2230 M 1.2450 T 1.8601 P 116.06 T 1.2185 T S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot