Dollar Recovers vs EUR, GBP by Korman Tam
The dollar continued to regain slight footing against the major currencies following Tuesday’s stronger-than-expected non-manufacturing ISM data, which reflected improving conditions in the services sector. The report reinforces the Fed’s view that the US economic downturn has been limited to the housing and manufacturing sectors, thereby resulting in some profit taking following the steep declines from the past week and a half. With heavy stops rumored beneath the closely watched 1.3280-level, traders pushed the euro/dollar pair lower – quickly triggering stops before finding buying interest around 1.3260. Further losses will likely be tempered given the backdrop of economic events for tomorrow and Friday.
Euro Retreats below 1.33
After testing support around 1.3280 for the prior three sessions, traders pushed EUR/USD through to activate stops placed just beneath for a quick 20-pip drop to 1.3260. Although the long-term view remains bullish for the euro, the possibility for a near-term retracement of its sharp gains remains. Tomorrow will see the ECB announce its monetary policy decision, in which markets are largely expecting a 25-bp rate hike to 3.50%. The subsequent press conference by ECB President Trichet will likely omit the word vigilance following another bout of policy tightening, but will probably emphasize the need to continue to monitor price developments in the Eurozone. Market reaction may be limited as it is seen to be overshadowed by Friday’s US payrolls numbers.
EURUSD will find interim support around 1.3260, followed by 1.3220 and 1.32. Additional losses will be tempered around 1.3160, backed by 1.3130 and 1.31. Gains will encounter ceilings at 1.33, followed by 1.3340 and 1.3370. Subsequent resistance will emerge at 1.34, backed by 1.3450 and 1.35.
GBP Slides on Data
Economic data from the UK prompted a 30-pip drop in cable with the report revealing an unexpected decline in both manufacturing and industrial output. UK October manufacturing output posted its largest monthly drop in over a year, down 0.4% m/m and up 2.5% annually. Industrial output also saw its steepest decline since August 2005, down 0.8%, missing estimates for a gain of 0.1% and up 0.6% annually.
The report pushed Cable to a session low near 1.9632, with support seen at 1.96 followed by 1.9550 and 1.95. Additional floors will emerge at 1.9470, followed by 1.9430 and 1.94. Gains will target resistance at 1.97, followed by 1.9740 and 1.9765. Subsequent ceilings are eyed at 1.98 and 1.9850
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