Dollar Mixed Versus European Currencies: The dollar index has seen a volatile session despite the Bank of England and European Central Bank holding their benchmark interest rates unchanged at their respective 0.50% and 1.50%. The index ran to a session high near 75.95 after the ECB announced downward revisions to its growth forecasts, but then slipped back to 75.70 where support held. The index is now back near 75.90 and once again approaching session highs. EURUSD has been hammered down following the downward growth revisions and Mr. Trichet’s comments indicating inflation expectations are now balanced. This has taken further rate hikes off the table in the near-term as some believe the next move will be a rate cut to provide aid to the region. EURUSD is trading down 130 pips at 1.3965 and is now below critical 1.40 support. Severe downside repercussions remain if that level is not recaptured quickly.
GBPUSD ran to a session high of 1.6083 after the market digested the Bank of England actions of keeping its benchmark interest rate steady at 0.50% and holding its asset purchase program at GBP200 bln. Although market expectations were met, some believed the Bank of England would move to a more favorable stance on an increase to the asset purchase program. When the increase to the asset purchase program failed to materialize, sterling found a bid and was aided further as money rushed out of the euro while Mr. Trichet spoke. Important support has been tested over the past several sessions, but so far the 1.59 level has been able to hold. Should this recent rally continue look to the 1.61 area as the first level of resistance.
Further strength in USCHF has the pair up another 110 pips at .8690 as traders continue to flee from francs after the Swiss National Bank’s dramatic attack on speculators. The pair trades just off today’s high of .8700 and appears set to test the .8800 level that we have been looking for since August 19. At that level there should be some stiff resistance in the form of the pair’s 200-day moving average.
