Dollar Remains Weak, Eyes on FOMC by Yan Xu

The dollar remains weak against most of its rivals on Monday on expectations that the Fed will cut interest rates by at least a quarter percentage point tomorrow.

The euro hovers above 1.3850 versus the dollar and is very likely to break 1.39 after the FOMC on Tuesday afternoon. The yen is trading in a narrow range between 114.68 and 115.36 against the dollar in today’s trading session.

After recent financial turbulence caused mostly by credit crunch, the Federal Reserve is widely expected to lower its benchmark rates to avoid recession. Some in the market even look for a 50 basis point rate cut. The market will keep range bound until the Fed makes interest rate announcement at 14:15 eastern time tomorrow.

Besides, tomorrow will see Germany ZEW index, UK RPI and CPI, US PPI, TICS and NAHB. Germany ZEW headline is seen down 15.5 in September, compared to a –6.9 reading in the previous month. Germany ZEW current conditions index is expected to fall from 80.2 to 75 in September.

EURUSD will face interim resistance at 1.39, followed by 1.3930 and 1.3950. Additional ceilings will emerge at 1.3980, backed by 1.40. Support starts at 1.3850, backed by 1.3830, 1.38 and 1.3770. Subsequent floors are eyed at 1.3750.

USDJPY encounters interim resistance at 115.50, backed by 115.80 and 116. Subsequent ceilings will emerge at 116.30, followed by 116.50 and 116.80. On the downside, support begins at 115 and 114.80, followed by 114.50. Additional floors are eyed at 114.30, backed by 114 and 113.70.
Sterling Fell Below 2

The sterling extended its loss as this is already the third day that thousands of customers withdrew money from Northern Rock Plc branches across the UK. The Bank of England last Friday provided financial support to this Britain’s fifth largest home mortgage lender to ease its liquidity needs. Subprime is still a problem for the US and European economy. The currency today fell below the major psychological level at 2 versus the dollar.

GBPUSD encounters interim resistance at 1.9980, backed by 2 and 2.0030. Subsequent ceilings will emerge at 2.0060, followed by 2.01 and 2.0150. On the downside, support begins at 1.9920, followed by 1.99 and 1.9870. Additional floors are eyed at 1.9850, backed by 1.9830 and 1.98.