NEWS / Foreign Exchange

the dollar extended its gains against the euro and sterling

4/9/2007 03:15 pm: EUR/$..1.3355 $/JPY..119.26 GBP/$..1.9607 $/CHF..1.2263 AUD/$..0.8163 $/CAD..1.1523

Dollar Extended Gains after Friday Payrolls

During low volume trading in Monday, the dollar extended its gains against the euro and sterling after last Friday's surprisingly strong US employment data. The report showed the US economy unexpectedly added 180,000 jobs in March and the unemployment rate dropped to 4.5% to 4.4%. After strengthening to below 1.34 against the euro on Friday, the dollar today rallied further to 1.3341. The sterling dipped below 1.96 versus the dollar. The trading is slow today as most European markets are closed for Easter Day.

The upbeat payrolls eased concerns about slowing down of the US economy and suggested inflation pressures may persist. With weakening housing market and unconstrained inflation, the Fed is not likely to cut interest rates or raise them in the near term. The best the Fed can do for now is do nothing, leaving the rates unchanged at 5.25%. In contrast, the ECB may have two more rate hikes based on sound fundamentals in the euro zone. Therefore, we perceive the dollar rally against the euro is short lived and the euro will regain its strength when the trading volume is back to normal on Tuesday.

EURUSD will face interim resistance at 1.3370, followed by 1.34 and 1.3420. Additional ceilings will emerge at 1.3450, backed by 1.3480. Support starts at 1.3340, backed by 1.3320, 1.33 and 1.3280. Subsequent floors are eyed at 1.3250.

GBPUSD encounters interim resistance at 1.9630, backed by 1.9660, and 1.97. Subsequent ceilings will emerge at 1.9720, followed by 1.9750 and 1.9780. On the downside, support begins at 1.96, followed by 1.9570 and 1.9550. Additional floors are eyed at 1.9530, backed by 1.95 and 1.9450.

Yen Remains Weak Before BOJ

The dollar hovers above 119 versus the yen on Monday. The yen is under pressure as the Bank of Japan is very likely to announce that it will keep its interest rates at 0.5% after the monetary policy meeting on Tuesday.

Japan Vice Finance Minster Fujii today said that specific G7 topics have not been decided and reiterated currencies should reflect economic fundamentals. However, this upcoming G7 meeting is not likely to move the foreign exchange market.

USDJPY encounters interim resistance at 119.40, backed by 119.70 and 120. Subsequent ceilings will emerge at 120.30, followed by 120.50 and 120.80. On the downside, support begins at 119 and 118.70, followed by 118.50. Additional floors are eyed at 118.30, backed by 118 and 117.70.