Forex - Dollar dropped to record lows on US recession fears

Forex News and Events: The Dollar dropped to all-time lows against the Euro and a basket of currencies on Wednesday after Federal Reserve Chairman Ben Bernanke signaled further interest rate cuts in the fight to avert a US recession. Risks of a contraction in the world's largest economy were again heightened by a report showing new US home sales fell in January to the lowest rate in nearly 13 years and housing inventories swelled, despite falling prices. Bernanke's reiteration that growth risks rather than inflation were the main focus for the US central bank left investors anticipating another 50bp cut next month. EurUsd surged as high as 1.5143, all time high. It last traded at 1.5116 up 0.79%. Despite the dollar's latest collapse, analysts are not losing hope just yet for the greenback's much-anticipated comeback in the second half of the year. With the Fed expected to lower the fed funds rate target by at least another 100bp before the end of the current easing cycle, the Euro could test 1.5300 in the short-term, analysts predicted. The Fed has cut its benchmark overnight lending rates by 225bp to 3% since mid-September, while the ECB has kept its main rate at 4%. Rising prices for oil and other commodities are stoking inflation pressures, putting the Fed in a difficult position. Rallying commodity prices helped drive currencies like the Australian Dollar; AudUsd rose to a 24-year peak of 0.9457 earlier today. NzdUsd jumped to a fresh 23-year peak of 0.8215. UsdCad was unchanged to 0.9815 after hitting 0.9759 two-month low. Meanwhile, EurGbp jumped to a record peak of 0.7638 +1.02%.

Today's Key Issues (time in GMT): 09:00 NOK February Unemployment 1.7% vs 1.8% 12:00 TRY Central Bank FX reserves vs 70.552B 13:30 USD Treasury’s Paulson speaks on the US economy, Chicago 13:30 USD weekly Jobless Claims 350k vs 349k 13:30 USD Q4 Core PCE prices 2.7% vs 2.7% 13:30 USD Q4 PCE prices preliminary 3.9% vs 3.9% 13:30 USD Q4 GDP deflator 2.6% vs 2.5% 13:30 USD Q4 GDP preliminary 0.7% vs 0.6% 13:30 USD Q4 GDP sales 1.9% vs 1.9% 15:00 USD Fed’s Bernanke continues testifying on the economy, Senate Banking Committee 22:45 NZD January Merchandise trade 3.48B vs 3.64B 23:15 JPY February manufacturing PMI 52.3 23:30 JPY January Unemployment rate 3.8% vs 3.8% 23:30 JPY January Overall Household spending 0.2% vs 2.2% (MoM) 23:30 JPY January National CPI 0.9% vs 0.8% (MoM) 23:30 JPY January National CPI 0.5% vs 0.2% (YoY) 23:30 JPY January Tokyo CPI 0.5% vs 0.4% (MoM) 23:30 JPY January Tokyo CPI 0.3% vs 0.2% (YoY)

The Risk Today: EurUsd Market disregards US Dollar and Euro jumped to all-time high 1.5116 +0.79%. Medium term trading range is still 1.4500 – 1.5116. Initial support hold 1.4981 yesterday low. Pivot point 1.4500 marks strong support before 1.4311 trendline support and 1.4280 strong support. GbpUsd Cable broke last Friday 1.9630 upper Trendline resistance and advanced up to 1.9972 yesterday. But return in uptrend will be only confirmed over 2.0000 key level before 2.0100 resistance. Renewed pressure below 1.9500 might reopen the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Initial support holds 1.9630 former Trendline resistance. UsdJpy Market went off 108 pivot point. On the downside, further to yesterday 105.96 low, supports are set on 105.77 February low and 104.97 23rd January low, ahead of 104.20 trendline support. A return over 108 may open the way up to 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. UsdChf Market broke down 1.0732 February 1st low. It hit yesterday 1.0610 low. Initial resistance holds 1.0761. Renewed uptrend might look for 1.1130 (38.2% of 1.1603 – 1.0838 decline). Early January double top 1.1191 marks strong resistance. Initial support holds 1.0613 today low. Yesterday 1.0610 low marks support before 1.0500 Key level.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5300 K 2.0100 S 114.00 M 1.1500 P 1.5143 S 2.0000 P 111.92 S 1.1107 S 1.5122 M 1.9900 T 110.10 S 1.0761 M 1.5090 1.9785 106.50 1.0630 1.4981 M 1.9630 M 106.00 S 1.0613 M 1.4500 P 1.9337 S 105.77 M 1.0610 S 1.4280 S 1.9105 S 104.97 T 1.0500 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot