| 3/6/2008
5:00 PM: EUR/$..1.5379 $/JPY..102.64 GBP/$..2.0092
$/CHF..1.0224 AUD/$..0.9260 $/CAD..0.9854
Hawkish ECB Sparks Euro Rally
The dollar found no reprieve in the Thursday
session ahead of tomorrow?s closely watched February
labor report ? stumbling to fresh all-time lows
against the euro just shy of the 1.54-mark and
a 3-year low versus the yen at 102.56. Fears of
a US economic recession continue to plague the
currency with burgeoning expectations that the
FOMC will aggressively cut rates at the March
18th meeting. We look for the Fed to ease rates
by 50-basis points to 2.5%, while simultaneously
leaving the door open for additional cuts over
the coming months.
The US reports released today saw weekly jobless
claims fall back to 351k, from 373k a week earlier
and January pending home sales flat, versus a
1.5% decline from December. Market attention to
turn to Friday?s highly anticipated February labor
report. Recall January?s report sharply disappointed
estimates, contracting by 17k jobs. Consensus
estimates are calling for payrolls to grow by
25k jobs. However, in the event the non-farm payrolls
post another significant job contraction, we look
for the euro to power past the 1.55-level. The
February unemployment rate is also seen worsening,
edging up to 5.0% from 4.9% in January.
ECB Propels Euro
The European Central Bank left monetary policy
unchanged when it announced its policy decision
earlier, holding steady at 4.0%. However, the
subsequent comments from ECB President Trichet
fuelled a rally in the euro as expectations for
a rate cut were sharply tempered. Trichet reiterated
risks to price stability saying ?strong short-term
upward pressure on inflation? remains, highlighting
the growing disparity between monetary policy
stances of the ECB and the FOMC. He reaffirmed
the growth outlook, saying ?economic fundamentals
of the euro area sound?, as well as stressing
?that maintaining price stability in the medium
term is the primary objective? of the ECB. The
most interest aspect of his commentary was more
of what Trichet didn?t say rather than what he
did say, which is to address the euro?s relentless
ascent against the dollar to record highs beyond
the 1.50-level ? essentially giving traders a
green light to further push up the euro against
the battered dollar.
EURUSD remains firm near the 1.54-level with
momentum still favoring the upside. Resistance
is seen at 1.5450, followed by 1.55 and 1.5530.
Subsequent ceilings are eyed 1.5580, backed by
1.56 and 1.5650. On the downside, support is seen
at 1.5360, followed by 1.5320 and 1.53. Additional
floors will emerge at 1.5270, backed by 1.5240
and 1.52.
|
