The dollar strengthened against the euro and major currencies last day amid thin volumes on account of the year end transactions, supported by the easing concerns over financial crisis. Strong CPI data has changed the attitude of the traders and that trimmed expectations for further interest rate cuts by the Federal Reserve.
The dollar rallied against major currencies 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.
In the same time the number of people filing for unemployment benefits increased last week, according to the US Labor Department's report released on Thursday.
Initial claims rose 12,000 to 346,000 for the week ended Dec 15. The four-week moving average was 343,000, an increase of 4,250 from the previous week's unrevised average of 338,750.
Continuing claims advanced by 12 k to 2,646,000 in December the 8th week, from revised 2,634,000 claims on the previous weeks.
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.
The Federal Reserve had cut its benchmark interest rate by a quarter of a percentage point last Tuesday, as widely expected is also supported the long tern view in dollar.
The Fed had announced a new plan last week, 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 1.4318 (1.4377) against the euro, after trading in the range of 1.4391 – 1.4306.
Last day DEUR traded in the range 144.35 – 143.86 and closed at 144.20.
Intra-day trading ranges; supports are 142.53, 142.04. Resistances are 143.79, 144.36.
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