The dollar today pared its loss from the Fed’s aggressive
rate cut as investors believe the rate cut will help the US
economy. The currency fell sharply yesterday after the Fed
slashed interest rates by 50 basis points yesterday.
US equities gained further today with the Dow Jones
Industrial Average rose 76.17 to 13,815.56 and the Standard
& Poor’s 500 index rose 9.25 to 1529.03 at 4:15 pm. The
rally in stock market stimulates carry trades modestly. The
yen weakened to above the 116 level against the dollar.
The euro failed to extend beyond the record high at 1.3687
set on as traders sold the euros to protect option bets at
1.40 against the dollar. The pair consolidates in range
between 1.3940 and 1.3987.
Earlier in the US session, a bunch of inflation and housing
reports came out weaker than expected, supporting the rate
cut yesterday. US CPI declined 0.1% in August, below the
estimate of an unchanged reading. Excluding food and
energy, core CPI rose 0.1%, less than the estimate of 0.2%.
US housing starts dropped 2.6% to an annual rate of 1.33
million units in August, while building permits fell 5.9%
to 1.307 million units.
Tomorrow will see US weekly jobless claims, August leading
indicators, and September Philadelphia Fed index.
The sterling was still under pressure from the liquidity
problem in UK banking system due to subprime issue. After
Northern Rock was bailed out last week, the Bank of England
announced today to allow commercial banks to use mortgages
as collateral to borrow via three-month repos. The sterling
fell off the high at 2.0172 set Tuesday to the key level at
2 versus the dollar.
EURUSD will face interim resistance at 1.40, followed by
1.4020 and 1.4050. Additional ceilings will emerge at
1.4080, backed by 1.41. Support starts at 1.3950, backed by
1.3930, 1.39 and 1.3880. Subsequent floors are eyed at
1.3850.
USDJPY encounters interim resistance at 116.30, backed by
116.50 and 116.80. Subsequent ceilings will emerge at 117,
followed by 117.30 and 117.50. On the downside, support
begins at 116 and 115.70, followed by 115.50. Additional
floors are eyed at 115.30, backed by 115 and 114.70.
GBPUSD encounters interim resistance at 2.0030, backed by
2.0070 and 2.01. Subsequent ceilings will emerge at 2.0140,
followed by 2.0170 and 2.02. On the downside, support
begins at 2, followed by 1.9980 and 1.9950. Additional
floors are eyed at 1.9930, backed by 1.99 and 1.9870.