Wednesday, September 16, 2009

FX Daily Report

Sterling fell broadly on Tuesday, hitting a four-month low versus the euro after Bank of England Governor Mervyn King said he was considering cutting the rate paid on reserves which UK banks park at the central bank.

The pound erased early gains made on a rise in UK house prices and data showing a slower than expected fall in domestic inflation, as King's statement fuelled speculation the BoE may use yet another device in its quantitative easing toolkit. In testimony to a Treasury committee, King said it would be 'sensible' to cut the rate at which banks reserves are remunerated, and that it was something the central bank was looking at.

Markets were taken off guard by the comments, which also sparked a rally in UK interest rate futures on the view that the BoE will keep lending rates on hold for some time, after last month increasing the amount of domestic assets it buys from the market to boost liquidity.

The European Central Bank might have to raise its interest rates before turmoil in money markets turmoil has fully subsided, ECB Executive Board member Juergen Stark said on Tuesday. Stark said the recent improvement in economic data suggested the euro zone could pull itself out of recession this quarter, earlier than expected. But he warned that a high degree of uncertainty remained. He said the bank may face the tricky situation of having to hike interest rates before unwinding the measures it has put in place to help money markets and banks through the financial crisis.

Federal Reserve Chairman Ben Bernanke said on Tuesday that the worst U.S. recession since the Great Depression was probably over, but the recovery would be slow and take time to create new jobs. U.S. unemployment has soared to 9.7 percent since the recession began in December 2007, and is forecast to push to 10 percent in the months ahead. Bernanke cautioned that growth next year would probably be not much faster than the economy's so-called long-run potential rate, which meant that it would be slow to take up slack and pare back the level of unemployment

EUR/USD: Yesterday the pair broke resistance at 1.4650 and reached 1.4686 high. Prefer buy moving down in 1.4650 - 1.4620 area for target 1.4720 (2008 12 18 high). Stop loss below 1.4590

GBP/USD: Despite bearish GBP view still hope that support in 1.6420 - 1.6400 should hold. Prefer buy dips till 1.6420 for correction till 1.6500 - 1.6550. Stop loss below 1.6380.

USD/JPY: Yesterday pair reached 91.60 high. Till support at 90.80 holds prefer follow yesterday’s strategy and buy at current 91.05 price and moving down till 90.80 for target 91.90. Stop loss below 90.50

USD/CHF: Prefer sell rally in 1.0350 - 1.0360 area for target 1.0260. Stop loss above 1.0420.

swiss pb

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