Forex - ECB and BOE left rates unchanged on Thursday

Forex News and Events: The US Dollar fell sharply on Thursday after Federal Reserve Chairman Ben Bernanke said the central bank was ready to take aggressive measures to support the US economy against the steep housing slump. The Fed stood "ready to take substantive additional action" if needed to support growth, but was not forecasting a recession. That left investors betting that a 50bp reduction in the federal funds rate was nearly guaranteed at the Fed's upcoming Jan. 30 policy meeting, sending the Dollar tumbling. The fed funds rate is currently at 4.25% percent after the Fed's easing cycle began in mid-September. Bernanke's remarks were in contrast to those of his European Central Bank counterpart, Jean-Claude Trichet. He, citing persistent inflation pressures, indicated further policy tightening was likely in the euro zone, giving additional strength to the Euro. EurUsd was up 0.93% at 1.4800 after earlier seeing a session peak of 1.4816. Investors were unconvinced that the ECB would raise interest rates in light of slowing growth in the common monetary area, helping to curb the Euro's rise, analysts said. UsdJpy dropped to an intraday low of 109.11, before bouncing back to around 109.63, about 0.24% lower on the day. US short-term interest rate futures are pricing in a roughly 90% chance of a 50bp reduction in the Fed's benchmark overnight lending rate to 3.75% at month end, while a 25bp cut has been fully factored in. An aggressive rate cut this month will wipe out the Dollar's yield advantage against the Euro. The ECB kept its benchmark interest rate at 4%, with Trichet indicating the bank was maintaining a tightening bias. In the UK, meanwhile, the Bank of England left rates on hold at 5.5%, giving Sterling some support, although its gains were limited as investors continued to worry about Britain's slowing economy. GbpUsd was up 0.21% at 1.9614, while EurGbp gained 0.73% to 0.7546. Prospects for further monetary easing in the US sparked a rally in the high-yielding Australian and New Zealand dollars. AudUsd jumped 1.29% to 0.8946, while NzdUsd vaulted 1.55% to 0.7858.

Today's Key Issues (time in GMT): 09:30 GBP November Industrial Production 0.1% vs 0.4% (MoM) 09:30 GBP November Industrial Production 0.5% vs 1% (YoY) 09:30 GBP November Manufacturing output 0.1% vs 0.3% (MoM) 09:30 GBP November Manufacturing output 0.3% vs 0.3% (YoY) 12:00 CAD December Unemployment rate 5.9% vs 5.9% 13:30 CAD November International Trade CAD 3.3B vs 3.32B 13:30 USD November Trade Balance $-59.1B vs $57.82B 17:45 USD Fed’s Mishkin talks on markets and risk, New York 19:00 USD December monthly Budget Statement $50B vs $41.96B

The Risk Today: EurUsd is getting close to 1.4825 top of January 1.4578-1.4825 range. Initial resistance holds 1.4825 early January high ahead of 1.4967 resistance November high. This might open the door up to 1.5000 key level. Yesterday low 1.4640 marks initial support. Below that, 1.4570 minor support holds the door before further drop to 1.4500 and 1.4280. GbpUsd remains weak having broken 1.9700 key support and 1.9590 support (38.2% retracement of 2 years 1.7049 – 2.1161 advance). Further downtrend pressure might open the door toward 1.9105 (50% retracement). Longs will only lock within a return over 2.0000 key level and 2.0100 resistance. UsdJpy remains weak below 109.76 and might head towards 107.25 low of November 26, 2007. As the pair trades below 109.76, the target is well in sight. Strong resistance holds 111.92 early January high. Initial support holds 107.91 January 4th low. UsdChf Downtrend started end December remains strong. The pair eyes a move down to a downward target of 1.0950 and a possible spike to 1.0889. The pair holds very heavy under 1.1372. Initial resistance holds 1.1202.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 K 2.0245 S 117.63 S 1.1640 T 1.4967 S 2.0100 M 114.00 P 1.1500 P 1.4825 M 1.9985 M 111.92 S 1.1353 M 1.4785 1.9525 109.00 1.1010 1.4640 M 1.9502 M 108.35 M 1.1000 M 1.4500 K 1.9400 M 107.50 K 1.0950 S 1.4280 S 1.9105 S 106.50 S 1.0888 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot