Dollar Broke 1.39 vs Euro by Yan Xu

The dollar broke the 1.39 handle against the euro on Wednesday on raising concerns about US economy and the Fed outlook. The sterling rose to as high as 2.03 versus the dollar.

The market focus has shifted from general risks aversion to US-economy related risk aversion. Last Friday¡¯s unexpectedly weak non-farm payrolls added to the worries about the US economy. It is still hard to measure how much impact the subprime and credit market crunch may have on the broad economy. The Fed needs to cut interest rates to avoid economic recession. The market has fully priced in an interest rate cut by the Fed on September 18 meeting. Most in the market has a bearish sentiment over the greenback.
The Fed is the only central bank that is going to lower the rates, while the ECB and BOE are expected to raise interest rates by at least once this year.

ECB Governing Council member Victor Constancio said on Wednesday that the central bank are keeping all options open, reinforcing expectations for a rate hike by the year-end.

Besides, oil set a record intraday high at 78.84 per barrel today, pushing the dollar down futher.

Tomorrow will see US weekly jobless claims, which is expected to increase from 318k to 325k.

EURUSD will face interim resistance at 1.3920, followed by 1.3950 and 1.3980. Additional ceilings will emerge at 1.40, backed by 1.4020. Support starts at 1.3880, backed by 1.3850, 1.3830 and 1.38. Subsequent floors are eyed at 1.3770.

GBPUSD encounters interim resistance at 2.03, backed by 2.0320 and 2.0350. Subsequent ceilings will emerge at 2.0380, followed by 2.04 and 2.0450. On the downside, support begins at 2.0280, followed by 2.0250 and 2.0220. Additional floors are eyed at 2.02, backed by 2.0180 and 2.0150.

USDJPY encounters interim resistance at 114.50, backed by 114.80 and 115. Subsequent ceilings will emerge at 115.30, followed by 115.50 and 115.80. On the downside, support begins at 114 and 113.80, followed by 113.50. Additional floors are eyed at 113.30, backed by 113 and 112.70.