CPI Data props up the Dollar
December 17, 2007
The dollar strengthened against the euro on Friday on the strong CPI data that trimmed expectations for further interest rate cuts by the Federal Reserve. It was the largest daily increase against the euro in almost three years.
The dollar rallied against major currencies for the third consecutive week, bolstered by a string of US economic reports showing higher-than-expected growth in consumer spending and higher inflation. The data eased some concern that the credit crisis would pull the US economy into a recession.
US consumer price inflation rose to 4.3 percent for the month of November, while the core rate excluding food and energy prices rose to 2.3 percent for the year.
Both retail sales and producer prices for November beat market expectations and strengthened the view that the US economy is getting strong gradually.
Data from the Commerce Department showed US retail sales rose 1.2% in November, the strongest pace since May.
According to the release by US Labor Department, initial jobless claims fell by 7,000 to 333,000 in the week ended Dec 8, while the four-week average of initial claims decreased by 2,000 to 338,750.
The Federal Reserve had cut its benchmark interest rate by a quarter of a percentage point on Tuesday, as widely expected is also supported the long tern view in dollar.
The Fed on Wednesday announced a new plan to increase liquidity and ease the global credit crunch situation, by injecting billions of dollars in cash to the financial system in the next few weeks. This would be done in association with the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Canada.
Medium Term Outlook
1.4841 may act as the major support for the dollar. If dollar sustains below 1.4841 against the euro, more recovery can be expected. Active trading below 1.4530 is the sign of further strengthening of the dollar. Next resistances are 1.4400 and 1.4280. 1.4600 is a support. Continuation of the weakness in dollar can be expected only above 1.4841.
In the spot trading dollar closed at 1.4422 (1.4627) against the euro; after trading in the range 1.4659 – 1.4408.
Last day DEUR traded in the range 146.56 – 144.34 and closed at 144.34.
Intra-day trading ranges; supports are 144.07, 143.73. Resistances are 145.47, 146.08.
Source: CommodityOnline