Fed bite the bullet, cutting by 50 bpt to sit at 4.75%. Focus shifts to BoJ
CURRENCY TRADING SUMMARY –19 SEPTEMBER 2007 (00:30GMT)
·U.S. Dollar Trading (USD) tumbled across the board as the Fed decided on an aggressive 50 basis point cut on Tuesday. The benchmark interest rate now sits at 4.75% following the first reduction since 2003. With markets split ahead of the announcement between a 25 or 50 basis point cut, an aggressive half a percent cut attributed to confidence in financial markets, with the accompanying statement taking a cautious tone in which the Fed highlights its concern with the recent fallout in market turmoil. Further more, the Central Bank also decided upon a 50 point cut in the in its discount rate of direct loans to banks. Following the monetary easing, traders sold the greenback as lower rates made their U.S. dollar denominated assets less attractive. In
·The Euro (EUR) traded at a record high post FOMC rate announcement as investors fled
·The Japanese Yen (JPY) fell 0.5% against the USD as post views of the Fed rate cut will encourage investors to borrow in Yen to finance risky carry trades. Overall the USDJPY traded with a range of a low 114.79 and a high of 116.39 before closing the day at 116.22 in the
·The Sterling (GBP) gained significantly on the rate cut trading well above the $2 levels once again, ending four day’s worth of declines. Further more, confidence was re-iterated after the Bank of England made an “exceptional” offer of extra reserves to the financial system. The Bank of England received bids totaling 25.5 billion pounds for today’s money-market operation and it allocated 17.3 percent of that amount. Overall the GBPUSD traded with a range of a low 1.9882 and a high of 2.0150 before closing the day at 2.0120 in The New York session. Looking ahead, plenty of attention will surround today’s BoE minutes for further clarification on
·The Australian Dollar (AUD) was well supported throughout the session, returning to its role as a high yielding currency. Earlier in the Asian session, RBA Governor Stevens indicated that the Central Bank was not “unhappy” with tightening regardless of recent market turmoil, with the economy remaining sturdy despite recent rate hikes, in which “some additional restraints may not be unwelcome”, although any further moves are unlikely following the FOMC loosening overnight. Overall the AUDUSD traded with a low of 0.8277 and a high of 0.8524 before closing the day at 0.8510 in the
·Gold (XAU) rocketed to 16 month highs following the FOMC decision as speculators sought alternative investments. In the early Asian session (Wednesday) XAU touched 28 yr highs on flow on effects up US$8.40 an ounce to US$732.20
TECHNICAL COMMENTARY
| Currency | Sup 2 | Sup 1 | Spot | Res 1 | Res 2 |
| EUR/USD | 1.3765 | 1.3825 | 1.3970 | 1.3985 | 1.4000 |
| USD/JPY | 113.71 | 114.37 | 115.85 | 116.38 | 116.61 |
| GBP/USD | 1.9744 | 1.9821 | 2.0115 | 2.0150 | 2.0226 |
| AUD/USD | 0.8238 | 0.8276 | 0.8505 | 0.8525 | 0.8592 |
| XAU/USD | 699.52 | 703.85 | 722.80 | 727.10 | 730.25 |
·Euro 1.3970
Initial support at 1.3825 (Sep 12 low) followed by 1.3765 (Sep 10 low). Initial resistance is now located at 1.3985 (Sep 18 trend high) followed by 1.4000 (Psychological resistance).
·Yen 115.85
Initial support is located at 114.37 (Sep 14 low) followed by 113.71 (61.8% retracement of the 112.61 to 115.49 advance). Initial resistance is now at 116.38 (Sep 18 high) followed by 116.61 (Aug 31 high).
- Pound – 2.0115
Initial support at 1.9821 (76.4% retracement of the 1.9653 to 2.0366 advance) followed by 1.9744 (Aug 21 low). Initial resistance is now at 2.0150 (September 18 high) followed by 2.0226 (Sep 14 high)
- Australian Dollar – 0.8505
Initial support a 0.8276 (Sep 18 low) followed by 0.8238 (Sep 11 low). Initial resistance is now at 0.8525 (Sep 18 high) followed by 0.8592 (0.7640 of 0.8875 – 0.8592).
- Gold – 722.80
Initial support at 703.85 (Sep 13 low) followed by 699.52 (Sep 10 low). Initial resistance is now at 727.10 (Sep 19 high) followed by 730.25 (May 8 high)
