Forex - Higher yielding currencies sink on expectation Central banks rate cuts

Forex News and Events: The US Dollar and the Yen rose on Monday, benefiting from safe-haven flows after weak economic data heightened fears about a deep economic slowdown around the world. The Yen was broadly higher, reaching a one-month high versus the Dollar as plunging equity prices prompted investors to reverse risky trades. The Yen performed best against currencies of countries where central banks are expected to slash interest rates later this week, including the Euro, Sterling, and the Australian and New Zealand Dollars. Analyst said the slumping stock market "is really helping to drive a lot of deleveraging, which tend to benefit the Yen the most". "If equities and other risky assets continue to take a hit, the Japanese yen could easily take its late-October highs." The National Bureau of Economic Research's business cycle dating committee, the arbiter of US recessions, said Monday the US economy slipped into recession in December 2007. Comments from Federal Reserve Chairman Ben Bernanke also fueled pessimism. He said the US economy remained under considerable strain and the Fed would also use other unconventional measures to aid growth as interest rates approach zero. Yesterday, UsdJpy was down 2.44% at 93.22, after hitting a low of 92.88, the weakest level since Oct. 28. EurJpy also dropped 3.16% to 117.53. EurUsd fell 0.72% to 1.2609. GbpUsd was off 3.54% at 1.4863, with losses exacerbated after data showed UK manufacturing activity had shrunk at a record pace. GbpJpy dived 5.88% to 138.55. UsdChf was 0.8% lower at 1.2040. Worries over the global economy intensified after data showed sharp declines in US, European and Chinese manufacturing activity. US factory activity dropped in November to its weakest level since the 1981-1982 recession and construction spending slumped in October. Falls in the Euro and other European currencies also accelerated after manufacturing activity in the Euro area, which has already entered recession, hit a record low in November. China's manufacturing industry slumped as well. As the global economy slows, the Bank of England, the European Central Bank, the Reserve Bank of New Zealand are all expected to cut rates by at least 50bp, diminishing the yield advantage of their currencies over the ultra-low yielding Yen. Last night, the Reserve Bank of Australia cuts cash rate by 100bp to 4.25% vs 75bp cut expected.

Today's Key Issues (time in GMT): 03:30 AUD RBA cash rate 4.25% vs 5.25% 06:45 CHF November CPI -0.7% vs 0.5% (mom) 06:45 CHF November CPI 1.5% vs 2.6% (yoy) 08:30 EUR Finance Ministers hold meeting 09:00 EUR Israel’s Livni speaks to EU Parliament panel 10:00 EUR Euro-zone Producer prices -0.3% vs -0.2% (mom) 10:00 EUR Euro-zone Producer prices 7% vs 7.9% (yoy) 11:30 EUR NATO Foreign Ministers meet I Brussels 14:00 EUR France’s Morin speaks to EU Parliament panel 16:30 USD Treasury’s Paulson speaks at US-China Economic dialogue 17:30 USD Philadelphia Fed’s Plosser to speak on Economy 00:00 EUR EU’s Almunia speaks on Economic stimulus plan

The Risk Today: EurUsd Market is still trading in the last 3-week trading range 1.2330 – 1.3298 but breaking up the triangle consolidation pattern. 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 release actual pressure and may put key resistance 1.6000 into focus. Resistance holds 1.4002 former trendline support. Initial resistance holds 1.3298 end October high. On the downside, weakness below 1.2690 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. GbpUsd Market dropped as low as 1.4558 on November 13th in current 3-month downtrend dropping from late October 1.6673 high. Strong supports hold 1.4560 trendline and 1.3682 March 2001 low. On the upside, strong resistance holds 1.6673 30th October high ahead of 1.7080 (38.2% retracement of 2.1161 – 1.4558). Further resistance holds 1.7860 (50% retracement). Trading range is set between Tuesday 25th 1.5534 high and 1.4807 yesterday low, respectively initial resistance and support. UsdJpy Market confirmed yesterday the break down November triangle pattern. Yesterday, pressure did open the way down to 92.88 low. Further downtrend may open 79.70 April 1995 low. Also, strong support holds 90.91 24th October 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 97.43 last week 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, renewed weakness below 1.1605 initial support and 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 1.2960 M 1.5534 M 97.43 M 1.2298 M 1.2575 1.4795 92.85 1.2080 1.2490 T 1.4807 M 94.80 M 1.1605 M 1.2308 M 1.4558 T 92.77 S 1.0692 S 1.1640 T 1.4042 S 90.91 S 1.0500 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot