Dollar Recovery Stalls As Market Mulls Over Possible Fed Cut

Major currencies barely moved in the forex markets today. Other than a couple of speeches out of Europe earlier today, the US calendar is bare. ECB president Trichet said at a conference in Vienna today the decision-making Governing Council must abide by the ECB’s primary objective of fighting inflation in the Euro area. He said, “It’s crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term.” The ECB has cut a lonely though strong and standalone entity amidst this current financial crisis. While other central banks like the Fed and the Bank of England recently cut interest rates, the ECB has kept its main refinancing minimum bid rate has been at 4% since June 2007. Although big business lobby groups and powerful politicians have been calling for the ECB to cut rates, mimicking the Fed’s moves to stimulate the economy, Trichet & Co stick to their guns and commitment to fighting a greater evil which is inflation in the Eurozone. Trichet’s words today should bring no relief to French Finance Minister Christine Lagarde who urged the ECB yesterday to be “more flexible” and to narrow the gap between the ECB’s benchmark rate and that of the Fed. Although the tightening bias supports a stronger Euro, traders aren’t that confident of a further Euro/dollar rally at the moment as policymakers try to talk down a rising Euro.

Officials Nudge Forex Markets Again

Trichet also repeated his concern about sharp fluctuations in forex rates, calling this “very, very important”. Eurogroup President Jean-Claude Juncker also said today excessive forex volatility could harm growth and repeated the G7 statement on forex movements. What is interesting is that Juncker also mentioned the advantage of having a strong Euro, which is in dampening oil prices.

European Commissioner for Economic and Monetary Affairs Joaquin Almunia said Monday the Euro at current exchange rates is overvalued according to the International Monetary Fund and other analysts.

Forex Trading

The US dollar is slightly lower against the Euro, Swiss franc and British pound on Monday. EUR/USD is capped by resistance around 1.5700-10 and its nearest support is around 1.5530-50, with another possible support cushion around 1.5480-1.5510. USD/CHF’s resistance is around 1.0430, followed by 1.0460 then 1.0500. GBP/USD is now hovering around 1.9950, from a session low of 1.9780.

Tuesday:

Australia NAB business confidence 0130 GMT

Bank of Japan rate decision

Swiss UBS consumption indicator 0800 GMT

UK mortgage approvals 0830 GMT

German IFO business climate survey by industry 1200 GMT

S&P/CaseShiller house price 1300 GMT

US consumer confidence 1400 GMT

Japan industrial production 2350 GMT

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