Forex - Dollar fell broadly as investors’ safe-haven demand faded

Forex News and Events: The Dollar fell broadly on Thursday, hitting 7-week lows against the Euro and Yen, as safe-haven demand faded and investors began booking year-end profits following months of steady Dollar buying. Data showing another weekly rise in the number of Americans filing for jobless benefits, this time to a 26-year high, also weighed on the Dollar, boosting the case for the Federal Reserve to cut interest rates next week from an already low 1%. With trading conditions thinning ahead of year end, that pushed investors toward the Euro, which carries interest rates of 2.5%, higher not only than US rates but also those in Britain, Japan and Switzerland, where the central bank cut rates by 50bp to 0.5% on Thursday. Implied rate spreads also moved in the Euro's favor after European Central Bank Executive Board member Juergen Stark said late Wednesday the bank did not have a lot of room to maneuver on rates after lowering them to 2.5% last week. Axel Weber, head of Germany's Bundesbank, also tried to cool further ECB rate cut expectations, telling a German newspaper "we should be careful when our interest rates enter territory never explored before." ECB rates have never been lower than 2 percent. EurUsd hit 1.3406, its highest level in 7 weeks, before easing to 1.3328, up 2.41%. EurGbp rose 0.85% to 0.8870 after posting 0.8909 high. EurJpy rose 0.97% to 121.99. GbpUsd rose 1.56% to 1.5027. GbpJpy UsdJpy fell 1.41% to 91.53. Part of the reason for the Dollar's drop was also tied to a fall in the rates banks charge each other to borrow Dollars, reflecting decreased demand for the currency, and a general rise in risk appetite. The Dollar's rally in recent months was mainly the result of investors unloading stocks, commodities and emerging market assets and putting the money into safer US Treasury debt. Also on Thursday, data showed the US trade deficit widened unexpectedly in October, with imports from China rising to a new high. Some analysts say rising deficits could pose a problem for the Dollar in the long run. Analysts, however, said the Dollar's current struggles were temporary and warned that the New Year will likely bring a renewed wave of risk-aversion and deleveraging that renews safe-haven flows into the currency.

Today's Key Issues (time in GMT): 08:00 EUR November Spain CPI -0.4% vs 0.3% (mom) 08:00 EUR November Spain CPI 2.4% vs 3.6% (yoy) 09:00 EUR EU Leaders conclude summit in Brussels 10:00 EUR October Euro-zone Industrial Production -1% vs -1.6% (mom) 10:00 EUR October Euro-zone Industrial Production -3.6% vs -2.4% (yoy) 13:30 USD November Producer prices -2% vs -2.8% (mom) 13:30 USD November Producer prices Core 0.1% vs 0.4% (mom) 13:30 USD November Retail sales ex-autos -1.8% vs -2.2% (mom) 13:30 USD November Retail sales -1.9% vs -2.8% (mom) 13:30 CAD Q3 Capacity utilization 78.5% vs 78.9% 15:55 USD December University of Michigan Conditions 55 vs 57.5 15:55 USD December University of Michigan Expectations 53 vs 53.9 15:55 USD December University of Michigan Sentiment 54.8 vs 55.3 16:00 USD October Business Inventories -0.2% vs -0.2%

The Risk Today: EurUsd Market broke on the upside the November triangle consolidation pattern. It’s been trading as high as 1.3406 yesterday erasing the last 6-week trading range 1.2330 – 1.3298. This may open the way to 1.3500 target equal to 1.3302-1.2334 spread. On the further upside, only a return over 1.4000 (former trendline support) and 1.5000 will confirm release of the 3-month pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3406 yesterday high. On the downside, renewed weakness below 1.2430 21st November low may open the way down to trendline support 1.2208. Next long-term support holds 1.1640 November 2005 low. Further support holds 1.0739 September 2003 low. Former resistance 1.3298 holds now initial support. GbpUsd Market dropped as low as 1.4471 last week in current 5-month downtrend dropping from Mid-July 2.0158 high. Strong supports hold 1.3682 March 2001 low. On the upside, initial resistance holds 1.5458 (23.6% retracement of 1.8669-1.4471 decline) ahead of strong resistance holds 1.6673 30th October high. Major pivot point is 1.6570 (50% retracement of 1.8669–1.4471 decline). Further resistance holds 1.7816 (50% retracement of 2.1161-1.4471 decline). Trading range is set between Tuesday 25th 1.5534 high and 1.4471 December low, respectively initial resistance and support. UsdJpy UsdJpy remains under pressure hitting 91.17 low yesterday. Strong support holds 90.91 24th October low. Further downtrend may open 79.70 April 1995 low. On the upside, strong resistance holds 100 pivot point, but only a recovery over 103 upper trendline and 105 pivot point will put focus again on 108 and 110.67 15th August high. Initial resistance holds 93.91 ahead of 97.43 24th November high. UsdChf Market hit 1.2298 high on 21st November. Further strength may look for 1.2463 strong resistance ahead of 1.2506 (61.8% retracement of 1.4278 – 0.9639 decline). On the downside, market hit 1.1790 yesterday low in renewed weakness below 1.1831 former initial support. Further weakness below 1.1203 30th October low would undermine the current uptrend and reverse through 1.0692 22nd September low and down to 1.0500 and 1.0375. Such a move may look for 1.0013 15th July low in front of 0.9637 17th March low.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 S 1.7080 S 103.07 T 1.2506 S 1.3500 P 1.6673 S 100.00 P 1.2470 T 1.3081 M 1.5534 M 97.43 M 1.2298 M 1.3290 1.4870 90.30 1.1835 1.2490 T 1.4471 M 88.38 M 1.1790 M 1.2308 M 1.4042 S 85.00 P 1.0692 S 1.1640 T 1.3682 T 79.70 T 1.0500 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot