Friday, February 19, 2010

Fed Hikes Discount Rate by 25 bps

Briefing
The dollar extended gains against the euro early in the Asian session Friday after the Fed raised the discount rate, but further gains were tempered as Fed officials' comments then quashed hopes of a coming rate hike. Euro-dollar fell to a $1.3443 low early doors, but rebounded slightly after comments from the Fed officials although the recovery was weak, and it failed to clear $1.3500, finding the bounce capped around $1.3490. Dollar-yen was trading at Y91.75, after briefly extending its overnight high from Y91.94 to Y92.10 this morning.

The pair pulled back to Y91.68 as rate hikes hopes were dampened, but remaine

d close to where it had ended in New York overnight, around Y91.80. Cable took the main brunt of the react pressure, initially hitting $1.5409 before extending lows to $1.5381. Dollar retains most of its gains into early Europe. Eurozone flash PMI's from 0758GMT and UK retail sales at 0930GMT the morning's highlights, followed by US inflation data at 1330 and Canadian retail sales at the same time.

Euro
Euro-dollar was trading around the $1.3620 level ahead of the late NY announcement of the Fed hiking the discount rate by 25bps. Dollar gained a strong general boost from the news, with euro-dollar dropping below $1.3500 to trigger a reported barrier that took rate on to a low of $1.3443. Rate recovered as Fed officials explained that the discount rate move was part of a normalizing process and didn't signal an imminent rise in Fed funds, the rate pushing up to a recovery high at $1.3537.

Rate again drifted off as fresh dollar demand emerged with rate settling between $1.3460/80 into the European open. Rate currently trades around $1.3470. Support seen in place between $1.3455/45, a break below to allow for a deeper move toward $1.3425/20 ahead of key support at $1.3400 ($1.3405 61.8% $1.2329/1.5145). A break here exposes $1.3350/40, with $1.3380 expected to provide interim support. Resistance remains back in the area of initial recovery highs at $1.3535/40, with interim interest noted around $1.3500. Eurozone flash PMI's due for release this morning from 0758GMT, with US inflation data at 1330GMT.

RES 4: $1.4026/46 High 3 Feb, Lows 21 Jan, 17 Aug
RES 3: $1.3838/53 High 9 Feb, Low 1 Feb
RES 2: $1.3789/00 High 17 Feb, 21-day moving average
RES 1: $1.3585 5-day moving average (minor)

CURRENT LEVEL: $1.3459

SUP 1: $1.3420 76.4% retracement of April/Dec rally
SUP 2: $1.3400/04 Current Bollinger base, 61.8% of the post-Oct 2008
SUP 3: $1.3383 Projected channel support 3 Dec
SUP 4: $1.3360 2% Moving average envelope


Yen
Dollar-yen opens in Europe at Y91.91 euro-yen Y123.80 The dollar-yen has traded higher overnight posting an initial high at Y92.10 in Asian trade. Momentum was added to the rally after the Fed's discount rate hike saw the dollar rally across the board.This was the event needed to help dollar-yen push through the Y91.50 level after it had been stalling at Y91.37 and then Y91.47. The break through saw the pair clear away from the top of the daily Ichimoku cloud which is at Y91.50 today and push onto the Y92.00 handle for the first time in over month.

A daily close last night at Y91.97 outside the top of the cloud is noted by traders as another positive signal for the dollar-yen and the market now targets a move to Y93.75 the high on the 7th January. The cross-yen was relatively quiet, as the main focus was the dollar overnight. The cross-yen came back slightly as the Asian equity markets were sold off, euro-yen was sold down to Y123.56 before recovering to Y123.80 at the European open.

RES 4: Y93.02 50% of Nov/Jan projection
RES 3: Y92.53 76.4% retracement of Jan/Feb decline
RES 2: Y92.25 200-day moving average
RES 1: Y92.10 High 18 Feb

CURRENT LEVEL: Y91.90

SUP 1: Y91.40 Top of the Ichimoku cloud
SUP 2: Y91.05 5-day moving average
SUP 3: Y90.40/60 Tenkan & Kijun lines
SUP 4: Y90.20 21 & 100-day moving average


Cable
Cable managed to recover off late NY lows at $1.5492 to $1.5529 into early Asia but move was short lived as the dollar gained a major boost from the Fed's decision to hike its discount rate by 25bps. Cable dropped to an initial low of $1.5404 before bouncing back to $1.5450/60 as the dollar pared gains on reported Fed comments suggesting that the discount rate move was not a signal for an imminent hike in Fed funds.

Rate eased back to retest the early lows, bouncing again to $1.5450/60 before breaking down to session lows of $1.5381 in late Asian trade. The move said to have triggered a reported barrier with rate recovering back to $1.5415/20 into early Europe. Rate currently trades around $1.5415. Support remains toward $1.5380, a break here to open a deeper move toward $1.5375/70 ahead of stronger level at $1.5350. Below here and the area between $1.5305/1.5290 moves into view. Resistance seen toward $1.5420, a break to open a move up to $1.5450/60 with stops placed on a break above.

RES 4: $1.6030 55-day moving average
RES 3: $1.5833/50 Low 30 Dec, Low 1 Feb
RES 2: $1.5820/31 21-day moving average, Bear-flag top
RES 1: $1.5614 Former bear-flag base

CURRENT LEVEL: $1.5409

SUP 1: $1.5385 Projection of bear-flag range
SUP 2: $1.5350/68 50% retracement of $1.3659 to $1.7041, High 5 Jan 2009
SUP 3: $1.5310 Current base of the daily Bollinger band
SUP 4: $1.5275 61.8% of implied full bear-flag target

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