Reply #10: dollar watch

[UpInArms]

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 76.020 Change +0.361 (+0.48%)

Dollar - Will ADP Make or Break the Buck?

http://www.dailyfx.com/story/bio2/Dollar___Will_ADP_Make_1196851655721.html

With the exception of the pound which broke the 2.0400 figure in the aftermath of soft UK housing and PMI Services data, the majors continued to quietly consolidate as markets awaited the first clues regarding the US labor outlook from the ADP survey due to be released at 13:15 GMT later today. With a 25bp rate cut from the Fed a near certainty according to fed funds futures, the only question facing market participants is whether the Fed will loosen monetary policy even further by lowering interest rates by 50bp rather 25bp at next week’s FOMC meeting.

The US employment picture may go a long way in determining Fed’s policy choice which is why today’s ADP report could be the key to wether the dollar will strengthen or weaken in the North American session. A print of less than 50K in the ADP estimate could prompt further dollar selling as traders will begin to anticipate a possible 50bp cut form the Fed.

Meanwhile, economic news from across the pond was relatively negative for both euro but especially the pound. Cable broke below the 2.0400 barrier as further weakness in the HBOS housing survey and lower than expected PMI services reading put more pressure on the BoE to cut rates at tomorrow’s meeting of the MPC. The currency market is even more convinced that BoE will loosen in light of the fact the BOC – which oversees economic fundamentals considerably stronger that those of the UK - surprised with a rate cut yesterday. However, should the BoE hold rates steady for another month cable could very well bounce as all of the late shorts put on today may be forced to cover creating a knee jerk retrace rally that could take the pair back to 2.0600

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Could the Fed Really Cut by 50bp?

http://www.dailyfx.com/story/bio1/Could_the_Fed_Really_Cut_1196807284887.html

The lack of US economic data today led to directionless trading in the dollar which strengthened against the commodity currencies but weakened against the Japanese Yen and Euro. Fed fund futures are now pricing in a 50 percent chance of a half point rate cut, which means that next week’s interest rate decision could really be a coin toss. The division of expectations is also reflected in the range bound price action in the major currency pairs because no one knows for sure how much the Fed will cut. Even though the futures market is pricing in a 50 percent chance of a half point rate reduction, the US dollar is not. The shift in expectations compared to two weeks ago is dramatic but we have not seen an equally impressive move in the currency market. If economic data continues to weaken, more currency and futures traders may be convinced that a larger rate cut is possible. The first test will be this Friday’s non-farm payrolls report. Tomorrow we get the most important leading indicators for non-farm payrolls, which are the Challenger Layoffs report, the ADP employment survey and the employment component of service sector ISM. So far, jobless claims and the employment component of manufacturing ISM points to a weak release which is why the current forecast is for only a 70k rise. If we have any reason to believe that the number will be even weaker, fundamentals could take the EURUSD up to our 1.50 price target. Meanwhile the Gulf Cooperation Council meeting ended today with Mideast nations leaving the door open for individual revaluations. There was no consensus reached at the meeting as the region’s 2 largest economies (Saudi Arabia and the United Arab Emirates) debated their options heatedly. Revaluations by the oil rich nations would have more symbolic than economic consequences for the US dollar.

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