Dollar Recovers Mildly, FOMC Awaited

Market Overview | Written by ActionForex.com | Dec 16 08 10:44 GMT |

Dollar recovers mildly as traders take profits on short positions ahead of FOMC rate decision later today. Dollar index is drawing support from 38.2$ retracement of 71.31 to 88.46 at 81.90 while EUR/USD retreats ahead of key resistance level of 1.3768 after poor data from Eurozone. The Japanese yen is also mildly higher in general. Markets focus will turn to new residential construction data and CPI from US first and then FOMC announcement. Eurozone's December manufacturing and service PMIs plunged to 34.5 and 42 from November's 35.6 and 42.5 respectively. Although the readings are slightly better than consensus, these record low figures reinforced the sluggish business activities in the 15 nations. Separately, Germany reported worse-than-expected PMI of 33.5 for manufacturing component but better-than-expected PMI of 46.4 for services component. In Q3, employment in Eurozone dropped -0.1%. On yearly basis, the gauge fell to 0.8% from the revised 1.3% in Q2. In the UK, inflation in November was slightly higher than market anticipated. CPI dropped -0.1% mom in November, higher than consensus of -0.3% and October's -0.1%. On yearly basis, CPI fell to 5-month low at 4.1% while market expected it to come in at 3.9%. On the other hand, RPI in November was -0.8% mom, lower than consensus of -0.7% and October's -0.3%. Switzerland's industrial production dropped 5.2% in 3Q08, much lower than consensus of -2.3% and revised +9.3% in Q2. On annual basis, the reading came in at +0.7%, compared with market expectation of 3.4% and revised 6.4% in Q2. In US session, focus is on FOMC rate decision and release of consumer inflation as well as new residential construction data from the US. Fed is widely expected to cut rates by at least 50 bps to bring the federal funds rate to lowest levels in decades of 0.50%. There are some speculations that Fed will indeed opt for a deeper cut with interest rate futures pricing in more than 60% chance of a 75bps cut. But whether it's 50bps or 75bps, it shouldn't matter much as it's just a matter of time when Fed will adopt Zero Interest Rate Policy. The focus is indeed on any details that the Fed would outline in the accompanying statement on the plan for "qualitative easing". Building permits in November should have further reduced to 0.7M from 0.73M last month while November's housing start should have also lowered to 0.5M from 0.79M. Headline CPI is expected to moderate sharply from 3.7% yoy to 1.5% yoy in Nov while core CPI is expected to drop from 2.2% yoy to 2.1% yoy. Economic Indicators Update GMT Ccy Events Actual Consensus Previous Revised 23:50 JPY Japan Tertiary industry index Oct 0.40% -0.20% -0.60% -0.70% 0:30 AUD RBA Monetary Policy Meeting Minutes 8:15 CHF Swiss Industrial prod'n Q/Q Q3 -5.20% -2.30% 8.90% 9.30% 8:15 CHF Swiss Industrial prod'n Y/Y Q3 0.70% 3.40% 6.10% 6.40% 8:30 EUR Germany Services PMI Dec 46.4 44 45.1 8:30 EUR Germany Manufacturing PMI Dec 33.5 34.5 35.7 9:00 EUR Eurozone Manufacturing PMI Dec 34.5 34.3 35.6 9:00 EUR Eurozone Services PMI Dec 42 41.2 42.5 9:30 GBP U.K. CPI core Y/Y Nov 2.00% 1.90% 1.90% 9:30 GBP U.K. CPI M/M Nov -0.10% -0.30% -0.20% 9:30 GBP U.K. CPI Y/Y Nov 4.10% 3.90% 4.50% 9:30 GBP U.K. RPI M/M Nov -0.80% -0.70% -0.30% 9:30 GBP U.K. RPI Y/Y Nov 3.00% 3.10% 4.20% 9:30 GBP U.K. RPI - X M/M Nov -0.40% -0.30% -0.30% 9:30 GBP U.K. RPI - X Y/Y Nov 3.90% 4.00% 4.70% 10:00 EUR Eurozone Employment Q/Q Q3 -0.10% N/A 0.20% 10:00 EUR Eurozone Employment Y/Y Q3 0.80% N/A 1.20% 1.30% 13:30 USD U.S. Building permits Nov 0.70M 0.73M 13:30 USD U.S. Building permits M/M Nov N/A -9.30% 13:30 USD U.S. Housing starts Nov 0.75M 0.79M 13:30 USD U.S. Housing starts M/M Nov N/A -4.50% 13:30 USD U.S. CPI M/M Nov 0.10% -0.10% 13:30 USD U.S. CPI Y/Y Nov 1.50% 3.70% 13:30 USD U.S. CPI core M/M Nov 0.10% -0.10% 13:30 USD U.S. CPI core Y/Y Nov 2.10% 2.20% 13:30 USD U.S. Real earnings Nov 1.20% 1.40% 19:15 USD Fed rate decision Dec 0.50% 1.00%