Forex - Dollar looks heavy as investors are expecting a 25 to 50bp Fed cut by the end of January

Forex News and Events: The Dollar dropped on Friday after a December report showing the weakest jobs growth since August 2003. FX market was hit by fears of a recession and an increased expectation of an aggressive rate cut by the Federal Reserve this end of January. The jobless rate rose to 5%, the highest since November 2005. This was the 3rd key US economic indicator last week that was worse than the most pessimistic forecast. EurUsd traded at 1.4743 on Friday, unchanged but below the five-week high of 1.4825 reached in the wake of the US payrolls data. UsdJpy was down 0.84% at 108.60 rebounding from losses incurred after the jobs report 107.97 low. UsdChf fell 0.28% to 1.1084 after hitting 1.1019 Friday low. GbpUsd was unchanged to 1.9736. Interest rate futures reflected a more than 66% chance that the Fed will lower its benchmark interest rate by 50 basis points later this month. Such a cut would bring the fed funds rate to 3.75%, below all but two of the 10 most liquid currencies. A 25 basis point cut is believed a certainty. The dollar dropped sharply after data showed the Institute for Supply Management's non-manufacturing index registered growth in December and was higher than expected. That contrasted with the manufacturing survey earlier last week, which reflected contraction. However, the Dollar remained down on Friday, with the latest ISM data not enough to turn the tide of sentiment against it. The slowing US economy generated 18,000 jobs in December, with private sector employment contracting for the first time since July 2003. In contrast to bets for rate cuts in the United States, the European Central Bank appeared more concerned about rising inflation than easing growth, suggesting that rates will likely be left on hold at 4% for some time to come, especially after last week data showed euro zone inflation well above the ECB's target in December. Investors grew skeptical about global growth prospects with the US economy possibly headed to recession. In profit taking, they have diminished carry trades and investments at risk in their portfolios. Last week, the Dollar has fallen 3.25% against the Yen last week, the largest weekly decline in almost two months and the Euro was down 3.17% against the Yen, the biggest weekly fall since mid August. Sterling was also hit against the Yen posting a 4.4% weekly drop, the highest since mid August.

Today's Key Issues (time in GMT): 06:45 CHF December Unemployment Rate 2.6% vs 2.6% 08:30 DKK December Industrial outlook previously 2 08:30 DKK November Retail Sales previously 2.3% (YoY) 10:00 EUR December Euro-zone Business climate 0.90 vs 1.04 10:00 EUR December Euro-zone Consumer sentiment -8 vs -8 10:00 EUR December Euro-zone Economic sentiment 104.3 vs 104.8 10:00 EUR December Euro-zone Industrial sentiment 2 vs 3 10:00 EUR November Euro-zone Producer Prices 0.8% vs 0.6% (MoM) 10:00 EUR November Euro-zone Producer Prices 4% vs 3.3% (YoY) 10:00 EUR December Euro-zone Services sentiment 13 vs 14 10:00 EUR November Unemployment rate 7.2% vs 7.2% 12:00 EUR ECB’s President Trichet speaks at Banker conference in Basel

The Risk Today: EurUsd eyeing 1.4900 and 1.5000 as next targets, provided the pair surpasses 1.4785 last week. Support at 1.4570 holds the door to expose 1.4280. GbpUsd 1.9700 holds as the key support, anything below is very bearish, Longs will only lock in at 2.0100 or higher. Market has support at 1.9590 (38.2% retracement of 2 years 1.7049 – 2.1161 advance). Minor support holds 1.9650 today low. UsdJpy is heading towards our target of 107.25, the low of November 26, 2007. As the pair trades below 109.76, The target is well in sight. Initial resistance holds 109.55 Friday high. UsdChf went through 1.1160 support on Friday. This will mark now initial resistance. 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 support holds 1.1019 Friday low.

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 1.4723 M 1.9985 M 112.15 M 1.1353 M 1.4715 1.9695 109.10 1.1120 1.4570 M 1.9650 S 108.35 M 1.1000 M 1.4500 K 1.9400 M 107.50 K 1.0950 S 1.4280 S 1.9175 K 106.50 S 1.0888 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot