Dollar headed for the third winning week- eyeing Payroll and G7

As the US readies to mask the biggest national debt in history, the greenback got the lift across the board after ECB left its key interest rate unchanged at 2% amidst a contained inflation.
An interest rate differential bending towards US (at 2.5%) would benefit the dollar-based assets. On the data front, US Productivity rose at a 0.8% last quarter compared to prior 1.8% with an increase in the labor cost at 2.3% raising the threats of inflation. Services ISM index slipped to 56.4 this month from 57.3 earlier with a fall in the employment index to 52.25 from 55.5.
After weekly jobless claims fell by 9K to 316K, today’s non-farm payroll data is expected strong (200K) compared with 157K in December. Dollar could emerge unscathed from Fed Chief Alan Greenspan’s comments today on the US current account deficit. With US Treasury Secretary John Snow refraining from the G7 meeting (kicks off in London today), pressure on revaluation of Asian currencies could be toned down.
Technically, yen has breached the 104.20 trend line resistance paving way for 104.80. In spite of a strong UK services PMI of 55.9, Sterling’s gains were washed away as it lost a cent against the dollar.
The yellow metal sank to a 3½-month low breaking below $420 on a mixture of long liquidation and currency-related selling.

FOMC raises US interest rates to 2.5%

The markets consolidated ahead of the FOMC decision on the rate hike paring the dollar lower against the major crosses.
The FOMC rate hike, which had largely been discounted by the markets, failed to have any major impact on the crosses. The Fed continued with its measured approach towards further rate hikes in the coming months, disappointing the dollar sentiments.
Euro overcame some paltry data from Germany to move to 1.3080 but remained stuck to its range trading around 1.3030 after the FOMC decision. Cable remained stable, hovering around the 1.8840 levels as markets ignored the FOMC rate hike.
Yen tested the 104 levels before moving back to resume trading at 103.80, as the 103.75 levels still remain a point of resistance. With uncertainty still looming over the outcome of the Yuan revaluation during the G7 meeting, the yen is expected to remain under pressure.
The PCE price index benign at 1.5% well under the target of 2.0% over the past six months, the Fed sees no reason to adopt a hawkish outlook towards further rate hikes.

Forex Lull before the storm ??

Currency markets were little changed on Wednesday morning, as the traders seem unwilling to take major positions ahead of the all important FOMC meeting later today.
With a quarter percentage point rise already factored in, currency markets would eagerly look for any indications that the Fed may accelerate its “measured” monetary tightening. US data release revealed that ISM’s January manufacturing index fell to 56.4 from 57.3 in December.
Euro’s consolidation around the 1.3050 mark continues with Euro zone January manufacturing PMI outperforming both its US and UK counterparts, advancing to 51.9 from the previous month’s reading of 51.4.
The Japanese yen hardly moved in the early Tokyo session trading around the 103.60 levels – a government official commented that Japan should be more cautious in managing their forex reserves, which is the world’s largest. This could be an indication that the time is ripe for Japan to begin unwinding its colossal holdings of US securities to avert a portfolio erosion from dollar declines.
Cable managed to hold the 1.8850 mark notwithstanding a drop in January PMI to its lowest level since July 2003 ridiculing forecasts of an increase.

Dollar gives up gains as markets brace for the flurry of events this week

The dollar gained in the European session as markets anticipated good data release from the US ahead of a key week.
Euro moved to 1.2976, but recovered to trade around the 1.3040 levels despite positive data from the US, as markets braced for the action packed week.
The data releases showed an improvement in the Chicago PMI to 62.4 and an increase in the employment index to 52.8. The dollar was boosted further as Personal incomes shot up by a record 3.7% last month and a consequent increase in personal spending.
Yen moved towards the 103.50 levels on further rhetoric regarding the Chinese revaluation. Without any concrete outcome of the revaluation of the Yuan, the yen along with the Asian currencies are expected to reel under pressure.
Cable drifted lower despite an upswing in industrial trade to –3 and a surge in the consumer confidence index.
The data array expected - mainly the manufacturing PMI releases from the Eurozone, UK and the US could set the tone for a brief course before traders step back again ahead of Wednesday’s FOMC decision.

Monday 31st Jan: Heavy event driven week ahead for the majors, GDP figure disappoints the market

Weaker than expected Q4 GDP was the main driver of the market on Friday.
However after a brief sell off in the dollar it regained its trading range against the majors. The market expected the GDP figure at 3.5 percent but it was disappointed by only a 3.1 percent figure, which was the lowest since 2001.
The oil prices settled as OPEC said that the supply would continue to be maintained at the current levels.
Currency traders refuse to bend on either direction as the coming week is heavily ‘event driven’ including the Fed monetary policy meet, the G7 meet, the Iraq elections and the payrolls data to wrap it all up. With such events taking place the market movement could be volatile until the outcome of each of the events is analyzed.
The other event clouding the market for a long time now is the speculation over China’s possible revaluation of Yuan. Conflicting views and comments emanating from different countries continue to leave the markets confused.
The single currency hit a high of $1.3080 before it retraced back towards the mid $1.30 levels while the pound after hitting $1.89 slipped to $1.8880 levels. But Yen saw some see saw movement mostly on speculative trades over Yuan revaluation.