The euro moved sharply lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2930 level and was capped around the $1.3180 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.4865 to $1.2330. The Federal Open Market Committee yesterday kept its federal funds target rate unchanged and reported credit conditions have tightened since December. The FOMC also reported it will soon launch an asset-backed securities facility to support individuals and companies and reiterated it may soon decide to purchase U.S. Treasuries. Richmond Federal Reserve President Lacker dissented with the FOMC’s decision and wanted the Fed to begin purchasing Treasuries now. Traders eagerly await tomorrow’s Q4 GDP data with many economists expecting a decline of 5.4% in what would be the largest contraction since 1982. Data released in the U.S. today saw the Chicago Fed’s December Midwest factory index off 3.6% to 92.2, a twelve-year low. Also, December durable goods orders were off 2.6% and weekly initial jobless claims rose to 588,000 with continuing claims at their highest level on record at 4.776 million. New home sales fell 14.7% m/m and 44.8% y/y in December. Dealers are closely watching discussions between the Obama administration and Senate Republicans regarding the economic stimulus bill that could aggregate US$ 900 billion. In eurozone news, European Central Bank President Trichet called for greater transparency among financial institutions and added I said we could engage in non-standard actions and indeed we have already done so, notably on refinancing. He added We are at 2 per cent and I didn't exclude we could go below 2%. What I have said is we have a very important rendezvous in March. The single currency is also suffering from lingering rumours that one or more countries may be forced to leave Economic and Monetary Union. Trichet has adamantly railed against these stories but International Monetary Fund chief Strauss-Kahn this week said a lack of coordination on economic policy may mean the stability of the currency zone is in danger. Data released in the eurozone today saw German January unemployment rise by 56,000, its third consecutive monthly rise. ECB member Orphanides dovishly reported A central bank with a policy rate that is positive but rather low might be incorrectly advised to 'save its ammunition' so that it may still be in a position to ease policy later on. The idea of such policy (rates at zero) ineffectiveness is a fallacy. It may be desirable for central banks to take forceful and pre-emptive interest rate action aiming to minimize the probability that they may later find themselves in a situation where they will be forced to resort to unconventional policy easing. Other data saw the EMU-16 January business climate indicator fall to 3.16 while the EMU-15 December M3 money supply expanded +7.3%. Euro bids are cited around the US$ 1.2475 level.
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