Forex - Dollar edges up after ISM and comment form ECB’s chief Trichet

Forex News and Events: The Dollar halted a sharp sell-off against the Euro and a basket of major currencies on Monday on relief that US manufacturing had not deteriorated as much as expected. However, analysts said it was unlikely the Dollar's recovery would be sustained given a raft of economic data this week that could reinforce fears of a US recession and a steeper Federal Reserve interest rate cut this month. Traders wary of another below-expectations economic report had pushed the Euro earlier to a lifetime peak of 1.5276, but quickly started buying back the dollar when their fears did not materialize. EurUsd traded 1.5200 at close, up 0.13%, after having hit lifetime peak 1.5276. UsdJpy trade 103.51, down 0.21%, recovering from a previous three-year low of 102.61. EurJpy weakened at 157.34 -0.07% after hitting earlier multi-week lows at 155.94 and EurChf dropped as low as 1.5701, 1½-year low, before rebounding 1.5826 +0.15%. Some traders attributed the Dollar's recovery to remarks by European Central Bank chief Jean-Claude Trichet that Washington backed a strong Dollar. Trichet made the remarks as he entered a meeting of euro zone finance ministers in Brussels. But Analysts said the Dollar's mild recovery was likely to prove temporary, with more new US economic data (particularly non-farm payrolls) still to come this week. The Institute for Supply Management's index of US national factory activity fell to 48.3 in February from 50.7 in January, slightly above economists' expectations for a reading of 48.0. A figure below 50 indicates contraction. Analysts said the reading meant that an aggressive interest rate cut at the March Fed meeting could not be written off. Short-term interest rate futures showed about a 75% chance of the Fed lowering its benchmark overnight lending rate by 75bp at its March 18th meeting. That would further reduce the allure of the Dollar in favor of higher-yielding currencies such as the Euro or Australian and New Zealand Dollars. The benchmark fed funds target rate is currently at 3% after being slashed by 225bp since mid-September. The euro zone's refinancing rate is at 4% with the European Central Bank preoccupied with inflation.

Today's Key Issues (time in GMT): 00:00 USD OPEC meeting in Vienna today 03:30 AUD RBA cash rate 7.25% vs 7% 09:00 NOK Q4 Current Account previously 100B 10:00 EUR Q4 Euro-zone GDP revised 0.4% vs 0.8% (QoQ) 10:00 EUR Q4 Euro-zone GDP revised 2.3% vs 2.7% (YoY) 10:00 EUR January Euro-zone Producer Prices 0.8% vs 0.1% (MoM) 10:00 EUR January Euro-zone Producer Prices 4.9% vs 4.3% (YoY) 14:00 CAD BoC rate decision 3.5% vs 4% 14:00 USD Fed’s Bernanke takes part independent Community Bankers of America, Orlando 15:00 DKK February Currency Reserves 175.4B vs 175.8B 17:15 USD Fed’s Mishkin speaks on policy, Virginia 18:00 USD Fed’s Fisher speaks on inflation and growth, London 22:00 USD weekly ABC/Wash Post index -38 vs -37

The Risk Today: EurUsd Euro posted a new all-time high 1.5276 yesterday. Medium term trading range is still 1.4500 – 1.5300. Initial support hold 1.5144 Friday low. Psychological 1.5000 level marks strong support before 1.4500 pivot point. Initial resistance hold 1.5229 Thursday high. GbpUsd Cable advanced up to 1.9972 last Wednesday and consolidated in 1.9762 – 1.9972 range. Further uptrend would be confirmed over 2.0000 key level and 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). Further support holds 1.9630 former Trendline resistance. UsdJpy It remains weak in the 5 last consecutive sessions. On the downside, further weakness might open the door down to 101.68 January 2005 low and 101.22 November 1999 low. On the Upside, only 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. Initial support holds 102.61 yesterday low. UsdChf Market remains weak. It hit yesterday 1.0309 low. Further weakness might open the way down to 1.0000 psychological level. Uptrend would return over 1.0700 and open the way 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 1.5300 K 2.0100 S 110.10 T 1.1500 P 1.5239 M 2.0000 P 108.00 K 1.1107 S 1.5229 M 1.9976 M 105.00 S 1.0761 M 1.5190 1.9870 103.55 1.0405 1.5144 M 1.9762 T 102.61 M 1.0309 M 1.5000 K 1.9630 K 101.68 S 1.0200 S 1.4500 P 1.9105 S 101.22 T 1.0000 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot