daily brief

Euro Breaks Out As Dollar Under Assault, SNB Cut Rates Again

Thursday, 11 December 2008 09:51:35 GMT  |  John Rivera , Currency Analyst

The Euro broke above the 1.3100 price level for the first time since November 5th as a SNB rate cut improved the outlook for the global economy and the dollar saw broad based weakness. The Euro would reach as high as 1.3161 despite the ECB’s December report stating that the central bank sees risks to growth outlook are to the downside.

Talking Points
• Japanese Yen: Finds Support At 91.90
• Pound: Barker Forecast Growth End Of 2009
• Euro: Stark Signal Easing May End
• US Dollar: Jobless Claims On Tap

Euro Breaks Out As Dollar Under Assault, SNB Cut Rates Again

The Euro broke above the 1.3100 price level for the first time since November 5th as a SNB rate cut improved the outlook for the global economy and the dollar saw broad based weakness. The Euro would reach as high as 1.3161 despite the ECB’s December report stating that the central bank sees risks to growth outlook are to the downside. The MPC would also state that the medium-term inflation will be in line with price stability targets leaving the door open for more rate cuts. However, subsequent comments from member Juergen Stark that the Euro-zone could see a recovery at the end of next year following a few more quarters of weakness signaled that the central bank may be reluctant to continue cutting interest rate aggressively following its biggest rate cut in its ten year history. Current momentum could lead the Euro to try and test 1.35000 before another turn lower.

The Swiss National Bank cut their target rate another 50 bps which brings the total easing to 225 bps since September and the rate down to a four year low of 0.50 percent. The governing board leader Jean-Pierre Roth stated that the financial crisi has spread to the real economy and that growth “will be negative” for 2009. Indeed, the Swiss economy saw produced a flat GDP reading last quarter and with its main trading partners already in a recession the export driven nation will soon follow. Despite, the easing the Swiss Franc would rally on the announcement sending the USD/CHF down to 1.1900. However, failure to break the support level has led to a slight retracement. Our Technical Strategist Jaime Saettele is forecasting more bullish momentum from the Swiss Franc with the previous rally from 1.1828 fully correcting

The Pound saw bullish momentum on the back of dollar weakness and comments from BoE committee member Kate Barker which would see the currency test the 1.500 price level. The MPC member in an interview with the Glasgow Herald Barker said "I anticipate there will be a recovery toward the end of next year - by which I mean there will come a point where I don't expect things to get worse". If the Sterling manages to break above the psychological level we could see a breakout similar to the Euro. However, if another test failures than a drop below 1.4900 is a strong possibility.

The bailout for U.S. automakers will be the focus for traders today as the package has been approved by the House and is now headed for the Senate. Markets may be paralyzed today as the aide for Detroit is expected to receive resistance from Senate Republicans which could postpone final approval til next week. The potential for failure still lingers which could spark risk aversion and dollar bullish sentiment. However, overnight the dollar has been under assault and didn’t benefit from safe haven flows that briefly sunk the Yen crosses which could signal that more weakness lies ahead. Fundamentally, jobless claims are expected to remain above 500,000 signaling that the labor will remain weak for sometime which will only add to the dour outlook for 2009 growth. The U.S. trade balance is expected to show the deficit shrank to $53.5 billion from $56.5 billion as Americans have curbed their purchases of foreign goods.

Will The EUR/USD Break 1.3500? Join us in EURUSD Forum

Related Articles:

Fed Expected To Cut Rates Near Zero Next Week, Will The Dollar Falter?
U.K. Inflation Outlook Weakens Further as Growth Prospects Deteriorate
ECB Forecasts Economic Recovery in 2009, Holds 'Limited' Potential for Further Rate Cuts

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

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