Forex - Fed’s rate cut did little against fears of a Global recession

Forex News and Events: The Yen felt on Wednesday as US stocks rallied at the close, boosting demand for riskier assets. Earlier, declining stocks in the United States and Europe encouraged investors to reduce exposure to riskier assets despite the Federal Reserve's hefty interest rate cut on Tuesday. Moves in stock markets are seen as a barometer of investors' appetite for carry trades (borrowing Yen or other low-yielding currencies, to buy higher-yielding assets). The Fed's 75bp reduction in its benchmark overnight lending rate, to 3.5%, did little to calm investors' fears of a US recession and its impact on the global economy, analysts said. The Fed is widely expected to cut rates again at its next policy meeting on Jan. 29-30. Investors continued to fear a possible recession in the world's largest economy and wait on ECB to give indication that they may intend to follow the Fed's rate cut or not. Yesterday, UsdJpy dropped to 104.97, its lowest since May 2005, before recovering up to 106.75 -0.32%. UsdChf slipped 0.46% to 1.0919. Currencies such as the Yen and CHF tend to attract flows during periods of uncertainty as the low interest rates reflect the capital surplus of their respective countries. Analysts said investors were also disappointed that other central banks, particularly the European Central Bank, had not followed the Fed's emergency interest rate cut. Euro zone interest rate futures reflect expectations of around 75pb of ECB easing this year from the current 4 percent, with the first cut expected before June. Futures at the start of January had pointed to the ECB being on hold. New Zealand's central bank left interest rates unchanged at 8.25% as expected. NzdUsd last traded down 0.31% at 0.7634.

Today's Key Issues (time in GMT): 00:00 NZD Reserve Bank of New Zealand left rate at 8.25% 08:30 DKK December Unemployment 2.8% vs 2.8% 08:30 SEK December PPI -0.1% (MoM) 09:00 EUR Germany January Ifo business Climate 102.2 vs 103 09:00 EUR Germany January Ifo Current Conditions 107.2 vs 108.1 09:00 EUR Germany January Ifo Expectations 97.6 vs 98.2 13:30 USD weekly Jobless Claims 325k vs 301k 15:00 USD December Existing Home Sales4.95M vs 5M 15:30 CAD Bank of Canada Monetary Policy Report 16:20 USD Paulson & Trichet speak on risk, Davos 18:00 USD Alan Greenspan speaks on the Economy, Vancouver 23:30 JPY January Tokyo CPI 0.3% vs 0.3% 23:30 JPY December National CPI 0.6% vs 0.6% 23:50 JPY Bank of Japan Minutes of December 19-20th meeting.

The Risk Today: EurUsd Rebounded on Tuesday 1.4366 low for a clear return over 1.4500 pivot point. Current trading range is set 1.4366 – 1.4922. Market traded as high as 1.4922 last week, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Tuesday 1.4366 low marks support. With 1.4500 as major pivot level, market might look down for 1.4280 next support after trendline support holding 1.4311 December low. GbpUsd remains weak having dropped down to 1.9337 on Tuesday before recovering up to 1.9604 the same day. Yesterday had smaller trading range 1.9465 – 1.9618. Further downtrend pressure might open the door toward 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Longs will only lock within a return over 1.9800 short term Trendline and 2.0000 key level ahead 2.0100 resistance. Initial supports hold 1.9483 11th January low and 1.9337 yesterday low. UsdJpy remains weak having tested 104.97 yesterday low. In recent downtrend, pressure opened the way toward 106 support. Initial support holds 104.97 ahead of 104.20 trendline support. Strong resistance holds 110.10 last week double top ahead of 111.92 early January high. UsdChf Last two days sharp drop bring us back close to 1.0838 last week low. Further weakness will reopen the way down to 1.0759 trendline low. Initial resistance holds 1.1123 Tuesday high. Market might look for 1.1130 (38.2% of 1.1603 – 1.0838 decline). Early January double top 1.1191 marks strong resistance.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 K 2.0245 S 114.00 P 1.1500 P 1.4967 S 2.0100 S 110.10 S 1.1191 S 1.4685 M 1.9985 M 107.38 M 1.1123 M 1.4620 1.9565 106.05 1.0890 1.4500 P 1.9483 M 106.00 S 1.0970 M 1.4311 T 1.9337 M 105.63 M 1.0838 K 1.4280 S 1.9105 S 104.20 T 1.0759 T S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot