Forex - The Reserve Bank of Australia lifted rates by a 25bp to 7% ahead of ECB and BoE meetings

Forex News and Events: The Dollar slipped against the Euro and edged up against the Yen on Monday as investors waited to see how major central banks at policy meetings this week will respond to a potential global economic slowdown. The Bank of England and the European Central Bank are all due to meet, and dealers will be focusing on whether they are concerned about the severity of the US slowdown and whether it will affect their economies. If all those banks warn about slowing conditions down the road, then investors' willingness to take risks could suffer, hurting higher-yielding currencies such as the Australian dollar and helping low-yielding units like the yen. The Reserve Bank of Australia lifted rates by a 25bp to 7% and said a “significant “slowing of growth was needed to keep inflation contained, which Forex traders took as a signal that more rate rises could be in store. Yesterday, EurUsd climbed 0.16% to 1.4825, largely driven by gains in EurJpy and profit-taking on the Dollar's burst of strength on Friday. EurJpy was up 0.37% to 158.21 while UsdJpy ticked up 0.22% to 106.72. AudUsd rose 0.33% to 0.9073 after earlier touching a near three-month high of 0.9101. GbpUsd gained 0.48% to 1.9747. Uncertainty continued to rule the US Dollar after it was whipsawed last week by another hefty interest rate cut from the Federal Reserve, weak data on US growth and jobs and a surprisingly robust manufacturing report. Since the credit crisis flared up last summer, European Central Bank officials have kept their focus on containing inflation and played down the risk of a growth slowdown. However, some analysts do not think that the euro zone can escape from the knock-on effects of the slowing US economy. The ECB is expected to keep rates on hold and the Bank of England will likely lower borrowing costs on Thursday. Sterling firmed broadly in a snap-back from heavy selling on Friday. The Fed has already slashed its benchmark interest rate by 1.25% in the last two weeks, the biggest move in that time frame since the US central bank began using the fed funds rate as its primary policy tool in the early 1990s.

Today's Key Issues (time in GMT): 00:00 AUD Reserve Bank of Australia increase its cash rate by 25bp to 7% 09:30 GBP January PMI Services 51.5 vs 52.4 09:30 GBP January PMI Construction 54.5 vs 56 10:00 EUR December Retail Sales 0.3% vs -0.5% (MoM) 10:00 EUR December Retail Sales -0.6% vs -1.4% (YoY) 16:00 USD January ISM non-manufacturing 53 vs 54.4 15:00 USD Treasury’s Paulson testifies at Senate Finance Committee, Washington 17:15 USD Fed’s Lacker speaks on the US economy, West Virginia 00:01 GBP January nationwide Consumer Confidence 83.5 vs 85

The Risk Today: EurUsd Rebounded from late January 1.4366 low for a clear run through 1.4500 pivot point. Current trading range is set 1.4366 – 1.4952. Market traded as high as 1.4952 last Friday, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Last week 1.4755 low marks initial support. Lower than 1.4500 pivot level, market might look down for 1.4280 next support after trendline support holding 1.4311 December low. GbpUsd It broke through Trendline resistance 1.9793 late January. Strength has been reversed Friday and Cable found support on the former Trendline resistance at 1.9666. Uptrend confirmation will only lock within a return 2.0000 key level before 2.0100 resistance. Meanwhile, pressure below 1.9800 might open the door toward 1.9337 January low and 1.9105 (50% retracement of 1.7049 – 2.1162 advance). UsdJpy remains weak having tested 104.97 low 23rd January. In recent downtrend, pressure opened the way toward 106 support. Initial support holds 104.97 ahead of 104.20 trendline support. Initial resistance holds 107.89 Friday high. Strong resistance holds 110.10 previous week double top ahead of 111.92 early January high. UsdChf dropped Friday down to 1.0732 new low but rebounded up to 1.0901 the same day. Initial resistance holds 1.1123 late January 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 1.4907 M 1.9959 M 107.89 M 1.1123 M 1.4800 1.9725 107.00 1.0925 1.4755 M 1.9483 M 106.00 S 1.0846 M 1.4500 P 1.9337 S 104.97 M 1.0812 K 1.4366 T 1.9105 S 104.20 T 1.0759 T S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot