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Euro and Pound Set to Gain This Week?
Mon, Oct 13 2008, 09:55 GMT
by Lena Manousarides
The week starts with European markets getting a lift since the early opening, and euro staring the week on a strong note. The reason for this change in sentiment is the outcome of G7 and the meeting of Euro group which happened this past weekend.
The world leaders came together and expressed their concerns over the latest economic crisis and also declared that they will do everything in their powers to stop the crisis from progressing by adopt new rescue plans to “save” the already troubled banking sector. The English Prime Minister Gordon Brown said that the government has a rescue plan in motion which means that 400billion pounds will be immediately available to help the banking system with the low liquidity. Europe is thinking of adapting the rescue plan too with Germany being the one who is said to raise around 500 billion for the same purpose.
It is clear that World leader are trying their best to fight the latest crisis and most analysts are saying that the best scenario we can expect is a mild global recession. The key to all this of course will be how the markets will react and if DOW JONES will continue the recent slide. Early European activity shows that traders are bit more optimistic but with the level of high uncertainty regarding the global economy this might change once again.
EUR/USD opened with a 150 points gap on Sunday and since then it continued its way up towards 1.37. On Friday before the close, we saw a big liquidation in the pair, with euro falling below 1.33 and stops getting hammered. This move was extreme and due the fact that traders were closing their positions due to the weekend.
Today’s calendar is almost empty, with only important announcement being the PPI from UK which came unchanged. Sterling was the big looser last week and we shall see how it will perform this week with CPI data coming out in the next few days. The very fact that UK government took the matters in their hands makes investors less pessimistic about the countries state of economy and from now on all eyes and ears will be on the economic data.
The fact that US dollars strength was mainly due to risk aversion and fear of crisis spilling to Euro zone is making us think that if sentiment changes from negative to less negative, dollar might get pressured once again as traders will get back to what they know best: buying euro and selling the yen, i.e. betting in riskier assets. This of course is far from reality yet, and we need to see proof that the current crisis is starting to ease. Until we need signs of stabilization, we believe the dollar will continue to get bid all across the board and carry trades will continue to deteriorate.
Watch New York open today as US Banks are closed due to national Holiday. The liquidity will be thin so we might see bigger moves later on today. EUR/USD needs to take out 1.3680-1.37 before we can say that there is more to come, however 1.3780 will be a good place to go short. GBP/USD is climbing its way higher but stalled once again at 1.72. A clear break of 1.7230 will give further gains for the pair…
Published on Mon, Oct 13 2008, 09:55 GMT
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Shock and Awe for Markets All Around the World!
Fri, Oct 10 2008, 09:34 GMT
by Lena Manousarides
Comment : Lena Manousarides [ lena@fxgreece.gr ]
There is the old saying that “actions speak louder than words” and that is what we can say about the situation which we experience at the moment. The current trading climate all around the world is chaotic and traders are wondering what the next minute will bring. The fear and uncertainty is at high levels once again and the fact that everyone is panicking helps to the high volatility that we see in currencies.
Sterling is the looser of the week with GBP/USD breaking important psychological level of 1.70 and dropping down to 1.6780 in mere moments. The pair found support at that level and rebounded but with the current atmosphere that goes on now, the move might not be finish just yet. Traders are pricing in more cuts from BOE due to the fact that current economic conditions are deteriorating and there is talk amongst traders that UK has been hit worse than other European economies form the recent crisis.
DOW JONES broke 9000 easily yesterday and still trades in the red and the same goes for NIKEI which dropped again more than 700 points even after the new liquidity injection that BOJ did to calm the markets.
Today the economic calendar is empty, with only important release the trade
balance from US. The number is expected better for the dollar however traders might choose to ignore this as they have bigger issues to deal with. Let’s not forget that tonight we have the beginning of the G7 meeting, where 7 of the most influential countries are meeting to discuss the current situation and to try and find a way out of this mess. Market participants will monitor closely the event and it will be crucial to see the reaction after the end of the meeting on Sunday open. It is vital to try and remain without any positions during this weekend as the risk is quite high and there is great uncertainty of what might happen. In the last few Sunday openings we had massive gaps in currencies and especially carry trades and this week we expect the same.
In an environment like that is very difficult to make good judgment calls or to analyze the current moves in the markets. The only way to survive is to either stay aside until the “storm” passes or to follow the fall and go with it. However, who can say honestly that is willing to sell in such low levels or buy at a time that everything goes south?
The question in everyone’s minds is when will this be over? Well from what we hear and read daily in the economic news and from what we see in the daily and monthly charts, it seems like the crisis is far from over but we speculate that the world leaders won’t let it collapse and we might see soon the first signs that there is “light in the tunnel” after all…
Published on Fri, Oct 10 2008, 09:34 GMT
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Nothing Stands in Dollars Way...Bernanke, Rate Cuts or God himself!
Wed, Oct 8 2008, 10:08 GMT
by Lena Manousarides
What a week this one is turning out to be, with NIKEI dropping almost 1000 points last night and DOW JONES still trading well below 10.000!The market sentiment remains negative and there is chatter amongst analysts that we haven’t seen anything yet!
Bernanke spoke in Washington late last night and told investors that the economy is suffering at the moment and the damage is much worse than previously estimated (nothing new there) so the bank will have to act accordingly. He also said that inflation starts to ease and the interest rates are not appropriate with everything that went down the past few weeks. This in other words means one thing: the bank will have to cut rates sooner rather than later. Markets didn’t react to his words by selling the dollar, but done the exact opposite and strengthen the dollar against the euro.
Today the economic calendar is empty with European GDP and US pending home sales the only events worth watching. The volatility in the markets is at its highest levels and currencies are acting like some rollercoaster going up and down. This reflects the high uncertainty that all traders feel right now and until we see this reversing, anything is possible.
The sudden move yesterday form FED to buy out all commercial paper directly from eligible issuers, has been the icing in the cake for investors, as this move was indented to bring some kind of assurance to the markets, but end up doing the exact opposite. The reason was that it was perceived as an act of desperation and official acceptance that US banking sector is collapsing, therefore risk aversion returned once again.
EUR/USD is trading in a “trance” these last two days and a move towards 1.3740 was completely reverse in less than an hour. The pair is still trading within 1.35-1.38 range and only a break can lead us to the next level. We favor the downside as everything that happens these days only strengthen the dollar further. As long as risk aversion persists, dollar will continue to get bid against the euro.
All day so far, ECB, BOE and FED are injecting money in the markets in a desperate attempt to bring stability in the markets, but investors don’t get easily “fooled” as they know that there is possibly worse to come.
Another phenomenal move was seen by all carry trades, as USD/JPY broke 100 due to risk aversion and GBP/JPY is moving fast and heavily towards 170. The later has lost more than 2000 points in two days and there is no point for now to try and find a bottom. Until we see markets stabilize the only way to go is south!
Let’s see what will happen today after New York open and how the markets will react to Bernanke s words and the latest attempts by Central banks to alter the already negative sentiment...
Published on Wed, Oct 8 2008, 10:08 GMT
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How Long Can the Dollar Remain Strong?
Tue, Oct 7 2008, 09:26 GMT
by Lena Manousarides
What a start of the week we had yesterday, with all markets in the red and DOW JONES breaking important psychological level of 10000 for the first time since October 2004!
What we witnessed yesterday was beyond reason and normality, and many traders all across the globe were left shaken and confused by the markets shenanigans. The main reason for this absurd move in all markets was fresh and renewed fear and uncertainty regarding the global economy and the fact that it became known that the $700B was not enough to fund all Banks and more money would be needed. The move by the FED to provide another $400B was seen by many investors as desperate move; however it was clear from the US authority approach that in desperate times we need desperate measures!
EUR/USD broke important support level of 1.35 and printed a new low at 1.3440 where it corrected form then on. Today the pair was trading well above 1.35 with 1.3620 highest levels seen so far. The move was not enough to break further higher though and pair dropped 100 points.
At a time like this there is a question amongst traders, why the dollar is so strong with US economy going into recession? Well there is not an easy answer there; however it might be interesting to see that in previous recessions, US currency was always strong in order to help the trade deficit. With the 700 billion rescue plan, the trade deficit will be even wider and therefore the only way to fight it is through a strong currency. Also the fact that we have the US elections soon is another factor to consider, however with this madness that we experience daily all the logical explanations as to why anything happens, are out of the window.
Today the economic calendar is empty, with only important events being the speech by Bernanke in Washington regarding the bank’s monetary policy and the state of the economy which traders will monitor closely due to the latest developments. Analysts are looking for signs as to what the bank is planning to do to fight the situation and many predict that it will be forced to cut rates sooner rather than later. Also a bit later today we have the FOMC minutes from the last meeting and again traders will be looking for hints as to what are the banks plans.
EUR/USD is clearly one downtrend and as long as it is trading below 1.3660 we shall see further losses. If the pair breaks 1.34, next important level is at 1.3360.
So, in a few words, we are experiencing very difficult times right now and the only wise thing to do is to stay aside and remain aside until the markets calm down. If we trade we need to be aware that technicals and fundamentals do not apply these days and we can only trade the trend until signs of reversal arise...
Published on Tue, Oct 7 2008, 09:26 GMT
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Euro Continues to Deteriorate Against the Dollar!
Mon, Oct 6 2008, 09:53 GMT
by Lena Manousarides
The week starts with euro weakness all across the board and especially against the dollar, after the pair opened on Sunday night at 1.3630 from 1.3780 Friday close. The Euro extended its losses during Asia and continues till now to trade on the downside breaking important support level of 1.3580 and printing new multi year low at 1.3540.
The fact that US government accepted the $700Billion rescue plan, after weeks of discussions, combined with the recent negative sentiment regarding the European Economy, are the main reasons why the European currency seems to suffer. Let’s not forget that Trichets speech after the meeting last week basically gave the green light for rate cuts due to the slowing of the economy and easing inflationary pressures.
This week we have a few economic events to keep us occupied, with most important ones being the FOMC minutes and Bernanke speech. Also we have BOE rate decision on Thursday and traders have already priced in a rate cut of 25 points. It will be interesting to watch the FOMC minutes after the last meeting and traders will monitor closely any comments that Bernanke and co says regarding the inflation. Analysts predict that due to the recent financial crisis and the liquidity problems, FED might be forced to cu t rates together with other Central Banks. All will be revealed soon and if we see signs that Fed is actually thinking of easing rates further, dollar will be hit with some weakness.
Today economic calendar is empty, and therefore the markets will have a chance to digest all the events that were unfolded this weekend. We had the Paris emergency summit , where 4 of the major European economies met in order to discuss financial crisis in Euro zone and what measures they need to take in order to survive the turmoil. News that another German Bank, Hypo Real Estate failed, gave European economy another blow and German Finance Minister Angela Merkel told reporters she will do anything in her power to save the situation.
EUR/USD continues to deteriorate and next support level lies at 1.3480. The pair has suffered many losses and charts suggest that there is more to come. If 1.35 gives way, we don’t have any important support levels till 1.33.
Let’s see what today brings and how New York open will react to recent euro drop. As market participants are in search of EUR/USD bottom the question now is where the drop will start to fade?
Published on Mon, Oct 6 2008, 09:53 GMT
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Crunch Time for the Dollar! Mr. Trichet has spoken...
Fri, Oct 3 2008, 10:22 GMT
by Lena Manousarides
The bank has opened the door for cuts! The inflationary pressures have been diminished as he said, but they have not disappeared. He spoke to the reporters concerning the slowing of the European economy, which is equally as affected by the global economic crisis. His tone was far more dovish than anticipated, and the traders “honored” his words, by heavily selling the European currency against the dollar and other currencies too.
The EUR/USD broke important support levels of 1.38 easily and printed a new low of 1.3740. The move was erratic and violent and stops were hit at once. However, the move was not strong enough to break lower and we had an immediate reaction back above 1.38. Today the pair is correcting further and as long as it holds 1.38 as support there is room for further gains.
The market today awaits two big events: the Non-farm payroll data and the House’s decision regarding the bailout plan. The payroll data is expected to print another negative month at -100.000, however the market was already priced in the number and in order to see some serious dollar weakness, the number has to be worse than that. Let’s not forget that these days the theme is “buy the buck” regardless of the situation and it probably won’t change for some time. It will be interesting to see how the market reacts to this news and if at the end it is proved as a non-event.
The other important event today is the bailout plan decision expected sometime later. Analysts expect that the House will finally accept the plan today, however if we have another rejection, the dollar and the global markets will be pressured. The result will be crucial, as the fates of many investors depend on it! Let’s not forget when Congress said a big fat NO to the plan and how the market reacted, this time the markets message is clear: If the plan is not passed, global markets will collapse!
So, it will be interesting to see the trader’s reaction to the news and how it will be traded afterwards. We are all aware that no matter what the economic data of the US and the state of the economy, the dollar is getting stronger by the day. How long can it last though? The charts are saying potentially 1.35 at the least. However fundamentally even with the bailout plan, the US economy is far from ready for a strong dollar, what with the wide trade balance and the high unemployment numbers and the prospect of recession being very high too.
EUR/USD is trading higher going into the New York opening and if 1.3920 gives way, then the pair has 1.3980-1.40 as its next resistance.
GBP/USD is trading higher too, but not with the same heavy tone as the UK data today was disappointing, therefore we need to see a clear break of 1.7780-1.7820 in order to say the pair will gain further.
Published on Fri, Oct 3 2008, 10:22 GMT
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Will Trichet "Save" Euros Fate or is it All Doom and Gloom?
Thu, Oct 2 2008, 09:26 GMT
by Lena Manousarides
The Senate has spoken...the vote was positive this time, as markets already priced in and now it’s up to the House on Friday to continue the matter further. The market reaction at the news was positive, however it didn’t last long as there is still uncertainty about the economic future.
The economic calendar today is almost empty, with only crucial event today’s rate decision by ECB. Analysts predict that bank will leave rates unchanged; however Trichets rhetoric will possibly change from neutral to easing. It is believed that due to the latest economic developments, Trichet will have to acknowledge that Euro zone is not immune to the economic crisis and it might need a rate cut after all. The fact that inflation shows moderation in Germany and other European countries, together with slowing growth might be the catalyst for the banks change of heart!
Whatever today’s outcome one thing is for sure: volatility will remain massive and trading will be choppy and erratic. Euro is at a make or break point as it holds still the 1.38 where a six year uptrend line lies. There are still hopes for euro bulls that it will keep this level and correct from there towards 1.40. However, today will certainly be the day to see Euros performance against the greenback and other currencies and if the downside move persists we might have important change in trends.
EUR/USD broke important support levels at 1.39, printing new multi year low at 1.3850 at the time of writing. The pair is trading heavily and is clearly on the downside move but it will be crucial to watch how it reacts after the New York open. Next support level to watch for the pair lies at 1.38 ahead of 1.3780.
GBP/USD is trading still on the defensive and a clear break of 1.7630 will open way towards 1.75. The fact that the pair cannot correct above 1.79 is definitely negative and only a break of 1.7920 will alter our dovish stance.
Let’s see what Mr. Trichet will have to say for himself and what the markets will tell him back! Watch the Q&A after his speech, because today’s questions will be no doubt about Euros fall and rate outlook, as the whole world wants to know, where we are heading next?
Published on Thu, Oct 2 2008, 09:26 GMT
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Euro Weakness Found Short Term Bottom at 1.40...More To Come?
Wed, Oct 1 2008, 10:11 GMT
by Lena Manousarides
Yesterday was quite a day for world currencies, with EUR/USD falling more than 400 points in a move which can only be described as violent and choppy. The reason was seemingly beyond the scope of fundamentals and technicals and could only be justified by the fact that traders closed their trading books due to quarter month-end and bought back the dollar to adjust their positions. Also the announcement that the now infamous bailout plan is going back to Congress for a second chance to be voted, gave traders some kind of reassurance that credit crisis could start to ease.
Other than that, the economic data from US was better than expected, however in order to start being optimistic about the state of the economy, we need to see a better number in the Non-farm payrolls later this week. Today we have the first estimation from ADP, which will be monitored closely by traders, and if the number is below forecasts, we might see the dollar getting pressured all across the board. The fact that the US economy had 9 months continuous negative payroll data, gives fuel to analysts to predict that if this continues for two more months, the economy will be officially in recession.
Today, apart from the ADP announcement, we have the ISM Manufacturing which will be interesting to watch as it is still below the psychological level of 50. If the number is better, the dollar could strengthen across the board. Traders don’t really pay much attention to fundamentals these days; however every surprise in the number either way is always welcomed.
The question now arises is what happens with tomorrow’s ECB decision? The general market sentiment is Trichet will leave rates unchanged, as he doesn’t like surprising the markets, however due to the credit crisis which spilled in the European banks and the easing inflationary pressures, a rate cut could be in the cards for the near future. Analysts from several banks have already priced in at least two rate cuts before the year end, so it will be crucial to hear Mr. Trichet’s words of wisdom in his press conference tomorrow.
So, two things worth monitoring today are the bailout plan situation, which is going back for a second vote and also the payroll data estimation from ADP. Both events will no doubt give traders some food for thought and if the answer of the Congress is positive, DOW JONES and the dollar eventually could gain big time, as the markets worries will be restored.
EUR/USD corrected its losses from 1.40, printing a daily high at 1, 4165 at the time of writing. As long as the pair trades above important psychological 1.40 there could be further correction towards 1.43. However, if 1.40 gives way later today we might see September’s lows at 1.39 once again. On the upside, the pair needs to break 1.4250 and 1.43 in order to continue its way up.
GBP/USD broke important support level of 1.7920 and printed a weekly low at 1.7760. The pair is still trading heavily and the daily charts show that this might continue for some time. A clear break of 1.7730 could open way for 1.7570 ahead of 1.75. On the upside, resistance lies at 1.7880 and 1.7920 were short positions could be taken.
Published on Wed, Oct 1 2008, 10:11 GMT
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Traders Gave Their Answer to Rescue Plan Rejection by Causing Mayhem in the Financial Markets…What ‘s Next?
Tue, Sep 30 2008, 09:29 GMT
by Lena Manousarides
The Congress has spoken: A big “NO” for the 700B rescue plan…The investors have spoken too: A negative response at the decision, with all markets deep in the red, DOW JONES falling more than 700 points, oil down 10 dollars and all other markets trading like a rollercoaster with frustration and fear the main drivers! What a chaos in the financial world! The three musketeers Paulson, Bernanke and Bush failed to impress the US Congress and now we are back where we started.
EUR/USD was trading at 1.4380 at the time of the decision, and a big move taken it within a few minutes all the way back above 1.45.However, move was exaggerated as liquidity conditions were thin and stops got hit after 1.4480. This morning the pair was trading back below 1.44, however so far it holds good support at 1.4330. A clear break of that level will open way to 1.4280 where buyers will possibly emerge.
GBP/USD was the weakest pair of all, as it only managed to go up to 1.8175 after the decision and later it gave all its gains back. Sterling is really on the defensive these days, what with bad economic conditions and high inflationary pressures making it difficult for BOE to decide its next move on rates. Analysts predict that the bank will have to cut rates soon and bets are on for the next meeting. Next level to watch is 1.7920-50 were good support lies there and only a break of that level will push the pair towards 1.75.
There are other factors that cannot be ignored regarding the Congress rejection. Let’s not forget that in a few weeks we have the US elections and the political games have already started. The economic crisis is certainly hitting all parties involved, however the republicans managed to come out as the “good guys” who said NO to this risky multi billion plans at times were the American public is looking for reassurance that things will be okay in the near future.
There was news this morning that the plan will go back to Congress tomorrow slightly “altered” in order to be voted once again. Now, why do we have the feeling that this time the plan will be all of a sudden approved? Let’s see what the developments will be and one thing is for sure, plan or no plan the global economy is suffering at the moment and the next question is not if we have further liquidity problems in the banking sector, but when?
So, it will be interesting to see New York opening and how will the futures and commodities markets react to all this and if the dollar continue to be up despite all this turmoil in the financial sectors. Don’t forget that one of the reasons why dollar is strong is because Euro zone is suffering as well and also traders start to price in that ECB might be pressured to cut rates as soon as this Thursday…
EUR/USD seems to be trading within 1.43-1.46 range and only a clear break of those levels will give us some king of direction as to where the pair is heading next. 1.4280 and 1,45 good support/resistance levels.
GBP/USD is still on a downtrend move; however, it managed so far to keep 1.7920 intact. A clear break of that level will open way for 1.7860 ahead of 1.78. On the upside, the pair has to take out 1.8180-1.82 in order to move back up towards 1.84.
Published on Tue, Sep 30 2008, 09:29 GMT
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Week Has Started With Euro and Sterling Weakness…More to Come?
Mon, Sep 29 2008, 09:53 GMT
by Lena Manousarides
What a start of the week for euro and sterling, as the Sunday open saw both currencies deteriorating against the dollar. EUR/USD broke important support levels at 1.45 and 1.44 printing new weekly low at 1.4305 at the time of writing. The extended weakness is caused mainly on news that European Banks are in trouble, after Belgian-Dutch Fortis Bank and British Bradford & Bingley were near bankruptcy and both were saved from joined efforts of government and other Banks.
Markets are incredibly agitated in the last days, what with US 700 billion rescue plan still not confirmed, bad economic data, banks and other investment houses reporting big losses and the whole financial system in turmoil. At times like these, investors usually buy safe haven currencies or gold and exit risky trades till things get better.
This week the economic calendar is full of important data, with ECB rate decision on Thursday and Nonfarm payrolls the releases that traders will monitor closely.
Today the economic calendar is almost empty, with some data out of US to be the only ones worth watching. We have the PCE data and Personal spending/income, which are expected slightly higher, but markets will probably ignore them for now as they have bigger issues to catch their attention.
Traders will position themselves for the week and already the bets are on as to what Mr. Trichet and his pals will decide this Thursday. The fact that economic data continue to disappoint from the Euro area, combined with easing inflation, gives fuel to analysts to say that maybe it’s time for ECB to stop with the hawkish stance and change its monetary policy from neutral to easing. Euro is weak on the back of these speculations and all eyes and ears will be on Trichet when he delivers his speech after the decision.
GBP/USD is also very weak these days and the trend so far seems to be on the downside, however 1.7920 seems to be a good support level and we think that the pair might find some short term support at least for now. Things in dear old England don’t seem to be better either and the latest victim of economic turmoil is Bradford & Bingley, one of the biggest mortgage lenders in the country, which UK government decided to nationalize after the lender came near bankruptcy. This news kept the sterling under heavy pressure and traders now start speculating that BOE will have to cut its interest rates sooner rather than later.
EUR/USD is trading lower since the European opening and if 1.43 gives way, 1.4280 would be a good support level and a place to go long with stops under 1.4230.
GBP/USD is under pressure too and next level to watch is 1.7960 ahead of 1.7920. Long positions could propably be taken at 1.7920 a very good support level with stops well under 1.7880.
So, all in all the name of the game in the markets across the globe seems to be fear and uncertainty for the future and that reflexes on the moves which are directionless and in the case of euro and sterling “choppy “ and violent. Let’s see how markets will react after the New York opening and what will happen with this “brilliant” US rescue plan which is expected to be voted sometime today…
Published on Mon, Sep 29 2008, 09:53 GMT
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Is Dollar Comeback a Far Fetched Dream?
Tue, Sep 23 2008, 12:16 GMT
by Lena Manousarides
This week is certainly turning out to be full of action, with the EUR/USD moving more than 450 pips and the oil making a record breaking move of 26 dollars from $103 to $130!
The reason for these volatile moves was once again the negative market sentiment which has controlled everything in the last days, and the need for investors to exit their risky positions amid the market turmoil.
The EUR/USD broke important resistance levels in a violent move yesterday, after the 1.4450 London closing daily low shot all the way up to 1. 4860. This move was mainly due to negative dollar sentiment and thin liquidity, but also because traders are not sure anymore how the dollar will benefit from the economic meltdown of the last few weeks.
Today the economic calendar is devoid of important releases; however traders will closely monitor Bernanke and Paulson when they both testify in front of the Senate regarding the financial crisis, plus the Fannie Mae/Freddie Mac situation. Their words will be crucial for markets all across the board and if they signal the crisis worsening over the next months, the dollar will continue to dive against its counterparts.
The very fact the US government and the FED joined their powers this weekend in order to make a rescue plan for all those companies that suffer from the crisis, was initially interpreted by the market as good news, however come Monday and the good feeling was lost altogether along with stock market gains we saw recently. Market fear and uncertainty remains the name of the game and until we see stabilization in the economy, it won't change.
In the next few days we have Bernanke and Paulson’s joint testimony and also durable goods orders from US and GDP. Additionally, we have some news from the Housing sector which if it comes out negative again will only put further weight on the greenback.
The questions arising from all this is still the same: Will the dollar continue its recent comeback or return to the dog house once again? Is the move towards 1.49 for the EUR/USD just a simple correction of the big move down from 1.60 to 1.38, or will we see the pair climbing 1.50? All these questions will be answered in the coming days and as long as 1.50 stays untouched, we might see the pair moving from 1.45 to 1.50 until a break occurs. Don't forget that at 1.48 the pair is still in a consolidation mode since 1.4970 is the 50% Fibonacci level from its recent fall.
One argument that some analysts have is that all this negative sentiment which has been building over the last few days, with banks collapsing and economic data deteriorating, cannot be good for the dollar outlook and if economic conditions in US don't improve, EUR/USD can easily reverse if not all some of its losses towards 1.53.
Let’s see however how today’s first day of the testimony will go and what the two ’brave men’ will say to us all, but most importantly, how traders will interpret their words in relation to market moves.
Published on Tue, Sep 23 2008, 12:16 GMT
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Will Dollar Be the Next Victim of Economic Meltdown?
Wed, Sep 17 2008, 11:36 GMT
by Lena Manousarides
What a week this one is turning out to be, with currencies rising and falling like a roller coaster. For instance, the EUR/USD opened at 1.4480 on Monday and lost all its gains on the same day; dropping all the way down to 1.41. Tuesday was no better, as traders were waiting for the FOMC meeting for any hints as to how the dollar would fare.
Since Monday morning's abrupt awakening when Lehman Brothers told the world they were filling for bankruptcy, markets have been deeply frustrated, with DOW JONES losing a record 500 points and NIKEI dropping 600 points. These are fragile times for the world economy and news that two of the biggest Investment groups, Lehman Brothers and Merrill Lynch were in turmoil, made investors even more wary and therefore a broad liquidation occurred.
From then on, speculation started that the FED would cut the rates this week, but once again the American Central Bank refused to be pressured and left the rates unchanged. The statement afterwards was dovish for the dollar, as the Bank implied that inflationary pressures are starting to elevate. The drop in oil and appreciation of the dollar were two factors that the Bank cannot ignore for the future of interest rates.
The EUR/USD was initially down on the FOMC meeting, with the dollar gaining across the board, however after traders realized that Bernanke and co. will possibly stay neutral when it comes to the rates, the dollar lost its gains and the pair returned to its pre-meeting levels.
Today’s calendar is almost empty, with the only news form America being the building permits. Traders will monitor closely all developments in the Housing sector, but the news is not expected to cause any big moves. The other important event today was the BOE minutes from the last meeting where they decided to leave rates unchanged. Today’s outcome was 8-1, which means that 1 wanted to cut rates and the others wanted to leave them unchanged. Blanchflower was once again the one who insisted on cutting the rates as much as 50 pbs.
The GBP/USD broke higher today, printing 1.7980, however fresh worries of HBOS shares being in trouble again saw the pound in a free fall, losing all its original gains. The pair is trading at 1.7880 at the time of writing and a clear break of either 1.7950 or 1.5830 will give us the next direction. With markets being so up and down these days, there is no clear direction for the currencies and although sterling is still on the defensive, it has managed to stay above 1.75 and kept that level as a good support.
The EUR/USD is trading heavily these days with many whipsaws and fake moves, and the next resistance level now lies at 1.4280-1.4320. A clear break out of those levels can lead much higher towards 1.44. On the downside, good support levels are at 1.4180 and 1.4130 and only a clear break of that can lead below 1.41. As the pair moves we can always try to buy near 1.41 and sell near 1.43.
In the next coming days we don’t have anything very important news wise, however all eyes will be open for more developments in the banking sector. Let’s not forget that fundamentals and technicals these days seem to take second place, as traders act only on their fears and speculations.
One would wonder how come the dollar doesn’t collapse against its other counterparts, what with all data coming out badly and more US Banks reporting serious losses. Well, the answer is that although the EUR/USD has managed to recover above 1.40 in the last week, there are still downside risks and only a clear break of 1.4350-1.44 will open way for further gains in the pair till 1.46-1.47. Let’s not forget that in troubled times, traders are using the dollar as safe haven and that is what we see at the beginning of the week when risk aversion took place.
Let’s see what today brings after New York opens and how traders will react to the ongoing economic developments and credit woes.
Published on Wed, Sep 17 2008, 11:36 GMT
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Dollar Still Strong... But For How Long?
Mon, Sep 8 2008, 10:57 GMT
by Lena Manousarides
Market opening was once again a very interesting experience for all the currencies and especially carry trades, as most yen pairs opened above 300 pips form Friday close and EUR/USD above 1.43.
The reason for such abrupt moves was this weekend’s happenings, after US government took it upon themselves to help out Fannie Mae and Freddie Mac and once again tried to “save the day”. Treasury Paulson confirmed early Sunday that the decision was made to help the two big mortgage lenders after the big liquidity crisis that broke months ago. This event together with the new hurricane threat, were enough to put a dent in dollars exquisite Friday rally.
The Nonfarm payrolls proved to be a non event, after the very bad numbers showed what traders already feared: that US economy is heading to recession. The number was worse than expected at -84000, but what really surprised markets was the high percentage of unemployment at 6.1%. News was taken badly at first and therefore dollar was sold all across the board, but after an hour or so the familiar euro sellers emerged again and took the currency all the way down to 1.42.
It is now very clear how volatile and directionless the market is as we see choppy trading almost every day and a lot of fake breakouts at the same time. With all the problems that US economy and Euro zone is facing, it is natural that traders don’t really know in which currency to place their bets and that is why fundamentals and technical’s don’t seem to apply.
EUR/USD close at 1.4270 on Friday night, but the Sunday open found the pair all the way back above 1.43. The move found first resistance at 1.4380 and then this morning at 1.4430. Europe opening took it all the way down to 1.43 and at the time of writing the pair is visiting the gap at 1.4280. There are always euro bears ready to sell and if pair does not manage to close above 1.43 tonight then 1, 40 is still in the picture for the next few days. However a close above 1.4430 might start giving us the first signs that a euro reversal might be intact.
This week the economic calendar is almost empty from important economic releases, with US retail sales, pending home sales and PPI the only ones. These numbers will no doubt stir things up especially if retail sales print a very bad number. Other than that we have some important economic releases out of UK, with PPI, Trade balance and the Treasury committee hearing in front of the parliament. The hearing will be monitored closely by the markets for any signs as to how bad the economic conditions are in England and what the Bank of England is thinking regarding the next rate decision. Let’s not forget that the fact that BOE kept rates unchanged last week, shows that the bank still worries about the inflation but if CPI comes out very weak too then a rate cut might be the only solution.
EUR/USD is still trading below 1.43 and a clear break of 1.42 will probably put further pressure in the pair. Next support now lies at 1.4130 ahead of 1.41.
GBP/USD is trading lower too and reversed all last night’s gains from 1.79 all the way down to 1.7660. A clear break of 1.76 will open the way to 1.75 a good support level for the time being.
Today the two day OPEC meeting starts in Vienna and traders will follow any comments of the officials regarding the recent oil slide. At the end of the meeting there will be a press conference and the outcome will be crucial for oils direction. At the moment of writing oil is trading above 107 and it will be interesting to see if 100 level will be seen this week. Analysts believe that the price of oil might stabilize around 110-120 for the next coming months however the direction will be influenced from any political or geopolitical events.
Let's see how New York reacts after today's opening and most importantly if EUR/USD will finally find a good base for the long waited correction. Most likely the pair will continue to slide towards 1.40 until a correction happen, but first the pair needs to take out 1.42 and close today below that level...
Published on Mon, Sep 8 2008, 10:57 GMT
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Will This Week Give Euro and Pound a Reason To Rise and Shine?
Tue, Sep 2 2008, 14:12 GMT
by Lena Manousarides
What a week this one is turning out to be for the sterling! The British currency broke an important psychological level of 1.80 following bad economic data and Alistair Darling's comments that the UK economy is suffering the most in 60 years were worsened with the prediction the economic crisis is set to continue into next year.
GBP/USD was trading at 1.8020 after the London closing and while US was on holiday the action was muted until Japan opened. The pair easily broke 1.80 in thin trading conditions and immediately dropped all the way down to 1.7850. Today it consolidated back to 1.79 but the move wasn’t strong enough to maintain its gains, therefore the pound slumped once more under 1.79.
Today’s economic calendar has ISM Manufacturing out from the US and is expected to print a negative number, however we think the reaction will be limited as the one thing in traders’ minds now is Thursdays BOE and ECB rate decisions; which are expected to really shake things up.
EUR/USD is trading below 1.45 and a daily close above that level could mean 1.44 is the next level. However as with sterling the move is now exaggerated and therefore we believe both pairs are nearing strong support levels with EUR/USD at 1.4380-1.44 and GBP/USD at 1.7660. One correction move might be coming soon and maybe the market is expecting Trichet's speech in order to begin the move upwards.
The rate decisions are expected to be both unchanged for ECB and BOE too, however some analysts are speculating that the BOE may surprise markets this week and cut rates. This scenario does seem a bit extreme as the pound has lost over 1500 pips in the last few weeks and therefore the Bank might not want to put further burden in the currency. Maybe a way to fight inflation is through a soft currency? Whatever the plan that King and his friends have will be revealed in the coming weeks and the pound will act accordingly. Let’s not forget that the traders have already priced in a cut in the rates and if that does not occur, the pound may be open for some needed gains.
The ECB rate decision will be announced on Thursday too, with market players monitoring Trichet's every word during his press conference. In his last meeting, the ECB President already told the markets that the Bank will have to see how the inflation is performing and will decide after September what they will do. The fact most traders are negative about the rate outcome, together with speculation that cuts are going to be the next theme for the Bank, are the main reasons for the Euros weakness. Therefore if Trichet does not back up rate cuts and asks maybe for further increases in the coming months, the Euro will have a reason to rise and shine.
The other important economic event this week is Non-farm payrolls, which is once again expected negative at -73000. Don’t forget the number is negative for the 8th consecutive month which certainly puts pressure on the US economy. Back in 2000 we had 10 consecutive months of negative payroll data and the country was already in recession. If by any chance the number is better than expected, the dollar might continue its strength without problems.
The other thing that was weighing on traders’ minds this week was Hurricane Gustav, which although feared severe, last night it was downgraded to a tropical storm and therefore the oil sold off below 110. That helped the dollar bid all across the board and made 1.45 level breakouts easier.
Today the action again is big and sterling together with euro are making new lows against the dollar by the minute. This trading action we think might be limited in the next few days, as Thursdays rate decision may make positions smaller and traders more aware.
Let’s see how the market will react with this week’s events and if the euro and pound are finally ready for a comeback!
Published on Tue, Sep 2 2008, 14:12 GMT
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Will This Weeks Data Give Dollar Further Strength?
Mon, Aug 25 2008, 12:32 GMT
by Lena Manousarides
So far, this month has been full of action and the market is certainly not in “holiday mode”. The fact the economic data coming out of US and Europe disappoint gives traders a feeling of uncertainty, which is very clear in the choppy trading we have seen these days.
Last week the euro managed to gain against the dollar after it broke 1.48, reaching 1.49 within a few hours. However the move was not strong enough to continue and therefore dollar bulls took control of the situation and the pair lost all its gains on Friday. Bernanke’s speech in Jackson Hall didn’t offer anything new for traders, who already knew the US was suffering with the subprime mortgage and low liquidity. Bernanke said he is unsure of the inflation and he basically gave the idea that the bank could keep interest rates unchanged through 2009. All in all he was dovish for the dollar, however traders decided to ignore him and still bought the greenback all across the board.
This week the economic calendar looks bit more “alive” and there are some important economic releases that traders will monitor closely. Today we have existing home sales which are expected to print better than last month and if the number is good, the dollar may see modest gains. Later on in the week we have durable goods orders and new home sales. On Tuesday we have the FOMC minutes which no doubt will play an important role in the dollar’s direction over the coming days. The fact that traders were optimistic about rate hikes in the future is one of the reasons why the dollar is strong these days and if the outcome of the meeting shows there is no chance of having higher rates for some time, the dollars outlook may not be quite as rosy.
Other important economic events this week are the German IFO which will again cause quite a stir in the markets as every economic release out of Euro zone from now on is affecting the Euros direction no end! The last set of data was very negative and if that continues then the euro may make a bid for 1.40.
The EUR/USD is trading above 1.47 and as long as 1.4630-50 is intact, we might see a further move towards 1.48-1.4850. However if the economic data out of US is better and surprises the markets, we could see the pair breaking 1.4630 and making new lows in the coming days. We believe that 1.4450-1.4550 will be good levels to buy the pair for a deeper correction towards 1.50.
The pound is really weak at the moment and that is to be expected after the GDP last Friday printed a multi-year low number which made analysts think the UK is already in recession. The fact the economic growth is struggling and the unemployment is going up makes the economic future uncertain and therefore the English currency remains very weak.
The GBP/USD finally broke the important 1.85 level and printed a new multi-month low at 1.8430. A clear break of 1.84 brings 1.8320-50 in the picture. From that level however, we may see consolidation for the pair as it is already trading in oversold territory.
Let’s see how the markets will react this week to the fundamentals and if the returning traders will support further dollar strength
Published on Mon, Aug 25 2008, 12:32 GMT
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EUR/USD Rejects 1.60 Again! More Dollar Strength Expected?
Mon, Jul 21 2008, 13:58 GMT
by Lena Manousarides
Last week was quite a week, with the euro achieving new highs above 1.60, the EUR/USD printing 160.40 late on Tuesday and the oil gaining even more strength. The cause of the dollar weakness was nothing more than speculators wanting a little action with the stops and even after worse than expected European data, the euro continued to climb. This move didn’t find any followers however, but after a few tries, 1.60 finally gave in to the dollar’s strength, with the pair losing more than 150 points, down to 1.59.
Last week’s main event was Bernanke’s testimony in front of the House of Representatives, where he was once again interpreted as being negative by the already biased markets. Of course Mr. Bernanke stated that the “top priority” of the bank is to help financial institutions when in trouble and therefore his and Paulson’s rushed to bail out Fannie Mae and Freddie Mac confused the markets even further.
What started as a very negative week for the dollar and DOW JONES, ended up with both returning to positive territory as the latter broke important resistance levels of 11400. News that J. P. Morgan and Citigroup announced better than expected earnings results, gave traders renewed confidence that recession has not yet hit. Members of the FED were hawkish when it came to inflation which was clear after the FOMC minutes and showed the banks next move in hiking interest rates may happen sooner rather than later.
The EUR/USD has traded in very narrow ranges since Thursday, between 1.5760-1.59, and that is likely to continue over the next few days. A clear break of those levels could give us a clue as to the next direction it will take. For now, the daily chart shows 1.6040 is the top and will stay so for the coming weeks.
This week’s calendar is almost empty, with the most important news being the German IFO, which will be monitored closely; as last ZEW data showed very poor numbers. The fact the euro is hovering near 1.60 is not taken lightly by European officials and rumors were heard that intervention was the reason why the EUR/USD didn’t continue its move above 1.60.
Other economic events this week include the Bank of England’s minutes from their last meeting and a testimony by Mervin King in front of the Treasury Committee regarding the latest economic developments. The pound is still weak against all currencies and although we saw an upsurge in GBP/USD towards 2.00, this was due more to the dollar’s weakness than sterling’s strength. The latest economic figures from the Housing Market show further deterioration and the fact that inflationary pressures are high only makes it harder for the bank to act. On one hand, inflation means raising rates, but on the other hand the fact the economy is struggling lately makes it more complicated, and another explanatory letter regarding high inflation may be in the cards. Whatever happens, this week we may see some rather erratic moves in the pound and there is further risk of losses against all currencies.
On the US calendar front, we only have the new home sales figures, together with existing home sales. Analysts predict that those numbers will come out negative again, however the markets have already priced in the worst. A better result is more likely to give us bigger moves and therefore we may finally see the dollar strengthening across the board.
Let’s not forget one thing, currency fluctuation has become so erratic, trading sometimes feels like nothing really works; fundamental or technical. The reason is the markets are controlled by fear and uncertainty and only the big players can enjoy the action as their main goal is to hit the stops. This can be seen in oil too, as one day it climbs four dollars and the next fall’s seven or eight. It’s clear that until we see some calm in the market sentiment, this will continue, so the only thing we can do is step aside and watch for those occasional golden opportunities.
Published on Mon, Jul 21 2008, 13:58 GMT
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Further Dollar Weakness Ahead?
Mon, Jul 14 2008, 14:56 GMT
by Lena Manousarides
Euro bulls were clearly in control last Friday when the EUR/USD broke important resistance levels of 1.5830 and then 1.59, making new monthly highs near the record 1.60. After the Sunday market opening, we saw more euro strength, but the move towards 1.60 faded therefore at the European opening the dollar strengthened and the EUR/USD fell towards 1.58.
What caused the dollar weakness these days? Well, what else? It’s the same old story; speculators were having a field day trying to hunt stops above 1.59 after news broke late Friday that Fannie Mae and Freddie Mac were in serious trouble due to the credit crisis, causing the dollar to suffer big losses against the euro and other currencies. The fact remained that although the news was negative for the greenback, the move from 1.5750 to 1.5950 was overdone and the reasons for it was not because traders realized the US economy is in slowdown; but because of stop hunting. The big players took the opportunity to go long on the euro from 1.5750 and extend the move towards 1.60. When the market opened on Sunday, we saw another wave of dollar sales until 1.5970, however the move did not have the energy to continue towards 1.60. It was clear from this morning’s news both the FED and the US government wanted to calm the market and pass the message that whenever a bank or a credit institution is in trouble, ‘SUPER FED’ will come to the rescue. Paulson’s message in his testimony last Thursday was clear: bug banks and institutions HAVE to be allowed to fail! On that note, stocks plummeted and the dollar was sold off. Come Monday morning and all of a sudden everything is hunky dory again. Paulson and the FED decided to take action concerning Fannie and Freddie and therefore stocks were up on the news and the same thing happened with the dollar.
EUR/USD broke support this morning at 1.5860, printing daily lows at the time of writing of 1.5840. A clear break of 1.5830 opens the door marked 1.58 and then maybe the one marked 1.5760 too - another good support level.
GBP/USD followed the dollar’s weakness too, as the pair moved higher towards level 2. This move again found limited interest and it soon faded, correcting back towards 1.98. The pound was and still is weak against the euro, especially after the latest round of disappointing economic data. This is evident in the EUR/GBP after the pair made new multi-week highs towards 0.8050.
This week the economic calendar is full of important data, starting with the FOMC minutes in the middle of the week, which will be monitored closely by the markets, in order to have an idea of the FED’s next move regarding interest rates. Analysts predict that the FED won’t hike rates just yet with the credit crisis still running and economic data still on the negative side. Apart from the minutes, we have the inflationary data with both CPI and PPI being crucial in deciding the dollars fate. If low inflation figures are printed the markets will immediately speculate the Fed won’t hike rates but instead either leave them unchanged or potentially drop them. That fact will weigh on the dollar; as recently the speculation of a possible hike was on every trader’s lips. It will also be interesting to see the numbers from the both retail sales and TICS data, which are announced later this week. The calendar is full of data which moves the greenback and if all the data disappoints then the dollar will continue to fall.
Euro bulls are in control at the moment but any economic data out of the Euro zone will certainly play a role in its direction for the next few days. German ZEW is to be announced this week and if the number comes lower than precious months, we may see a dent in the Euros strength. The fact the euro is hovering near 1.60 is not to be ignored as negative comments for the appreciation of the single currency could potentially arise once again.
One thing is certain, whatever happens in the next few days, dollar bulls have a long way to go before any sustainable strength and the fact the market is still in negative towards the US currency don’t make things any easier for the greenback.
Later this week Bernanke testifies in front of the Senate, on the subject of economic conditions and the monetary policy. Markets will monitor his speech closely for any clues as to what the bank will do in the future, but our view is he has spoken so many times in the last few weeks on a different subject each time; the FED is losing credibility with the market.
It is vital to see a change in the oil situation over the coming days too, as last Friday it broke into new record highs at 147 dollars per barrel. This occurred for geopolitical reasons such as Iran’s “war games” on Friday and also oil line disruption in Nigeria. The fact that DOW JONES went into negative territory and almost broke the psychological barrier of 11.000, added even more fuel to the speculators, who saw a chance to push the oil even higher.
Oil is up towards 1.50, EUR/USD is up towards 1.60, DOW JONES close to 11.000 and US economy still in the damps! What’s next from here? Will the dollar be able to defy all negative sentiment and find some kind of strength in the short term? Will the oil finally reach its peak? The answers to these questions are coming, but we may have to wait a while longer, especially with August just around the corner and traders getting ready to find some peace and quiet in holidays. Expect a potential consolidation until the end of August and then some real action after the holiday season finishes.
Today, things seem quiet in the currency market following New York’s opening and we suspect any moves will be muted after the busy Friday. Watch for any comments from US officials regarding Fannie and Freddie, plus any developments which occur in the banking sector.
Published on Mon, Jul 14 2008, 14:56 GMT
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Dollar Comeback! Is it Real? Will Bernanke Make it Happen?
Mon, Jul 7 2008, 11:56 GMT
by Lena Manousarides
What a week! The dollar bulls were clearly in control since Thursday, when Mr. Trichet indicated further rate hikes would not come into play for at least the next few months.
The two main events were the ECB rate decision and the non-farm payroll data from the US. The very fact we had these two releases at the same time on Thursday, made for difficult trading conditions and choppy trading was seen all across the board. EUR/USD made new weekly highs at 1.5910 minutes before the payroll data; however the -62000 job positions reported didn’t have a negative impact for the dollar, as most traders feared the number was set to come out far worse than that. When Mr. Trichet started his speech, EUR/USD dived more than 100 points in a few minutes, as the bank failed to deliver more hopes for rate hikes, and Trichets comments were clear for now: these rates will stay unchanged. The combination of a not-so-bad NFP number, together with a negative Trichet, made the Euro very weak against the dollar which gave dollar bulls even more excuses to buy the greenback against all other currencies.
EUR/USD broke important support levels at 1.5725, then 1.5660 and after the market opening this morning printed 1.5610, where the Euro got bid at those levels. The sentiment in the pair seems to have changed into dollar positive, for no other reason but pure Euro weakness.
This week the economic calendar seems rather empty, however the important event of the week is Bernanke’s testimony in front of the House of Representatives on Thursday, where together with Paulson he will give views on the economic outlook and more insight on what the next move by the FED will be. Analysts suggest that after the recent comments by US officials that a strong dollar is needed, we might have further verbal intervention regarding dollar strength, as the oil is due for a correction too.
Today we have the beginning of the G8, where officials from the eight richest nations are gathering in Japan to speak about world economic outlook and high oil and food prices. It will be interesting to listen for more comments regarding FX rates and if the dollar is mentioned we may see further strength in the American currency. The fact inflationary pressures are getting higher is making world leaders a little uncomfortable and therefore the FED may consider increasing its rates more than once before the end of the year.
Other important data this week is the BOE rate decision which is expected to be unchanged, however the fact that economic data disappoints every day could lead to a rate cut as soon as this Thursday. We all heard from Kings testimony in front of Parliament that inflation is soaring and growth is slowing, making the banks job especially tough to balance the two in the coming days. The pound is very weak against all currencies at the moment, especially the greenback, and a clear break in GBP/USD of 1.9580-1.96 will give us 1.9480-1.95.
EUR/USD has been trading below 1.57 since late Friday and the pair is struggling to gain momentum; signaling further losses in the pair. 1.5580 now comes in to play as good support levels and a clear break will open way for 1.5520. A correction could occur in the pair today and tomorrow towards 1.5725 but shorts can be tried there for a continuation of the downward move. Only a break of 1.58 can alter the downside scenario.
The fact that EUR/USD set a new high last week of 1.59, made a lot of traders position themselves long for the euro with a scope of 1.60. Here is another example of how market chatter and rumors work in favor of the big players, who spread the negative sentiment minutes before Trichet’s speech in order to take all the stops and then we have a relief rally of at least 300 points in the opposite direction. My question is this: has anything changed fundamentally over the last few days to support this dollar rally? No, I don’t think so. Data is still coming out negative for the dollar and oil is still hovering near record highs. We think the reason for the dollar strength has only to do with Trichet’s comments regarding rates and maybe some speculation that Bernanke may raise rates into the coming months. Also, the fact that many traders were long Euros and therefore got caught against the move on Thursday helped the dollar gain after EUR/USD liquidation took place.
Now, this week we will see if the dollar will keep up the good work and if Bernanke will paint us a nice picture of how the US economy performs. If his words are hawkish towards the economic outlook and high inflation, then the rally will continue for the greenback. Don’t forget that DOW JONES reversed all losses on Friday after it found good support at the psychological 11000 level.
So, it will be a very interesting week and although the economic data is limited, the moves could be quite big if either the G8 provide some news of FX intervention or if Bernanke gives the markets what they want.
Published on Mon, Jul 7 2008, 11:56 GMT
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What's Next for EUR/USD? Next Month Will be Crucial for Dollar's Direction…
Tue, Jul 1 2008, 10:05 GMT
by Lena Manousarides
Another month is coming to its end with markets having trouble adjusting to recent economic events. First of all, June was a very important month for the European Central Bank, as it celebrated its 10th anniversary. In the ten years which have passed since the formation of the ECB in 1998, its main goal has remained unchanged: to maintain price stability in all Euro-area nations and assist its steady economic growth. Team Trichet have managed to make the European economy one of the strongest in the world by raising the interest rates slowly but surely from 2% to today’s 4%. Last year’s favorable economic data allows for further increases with a view to making the Euro one of the strongest currencies in the world, and in the last four years, the EUR/USD has appreciated considerably from 1.20 to the recent all-time high of 1.60
The month started profitably for the dollar thanks to comments from Chairman Ben Bernanke that the US economy is getting stronger, plus the high levels of inflation, something which the bank doesn’t like and will do everything in its power to avoid. These comments were taken by the markets as a FED warning that interest rates won’t get any lower, but on the contrary the bank may raise them in the coming months. This alone was enough for the dollar bulls to take over once again and send the pair down towards 1.54.
But, when we started saying that dollar is staging a comeback and more dollar strength is coming, Mr. Trichet acted and took away the entire dollar’s recent progress. The European Central Bank left its key rates unchanged in the last meeting but in the press conference that took place after the decision, Trichet was more than hawkish and his words were so powerful and unexpected; the EUR/USD experienced a big push up towards 1.57. The pair skyrocketed from 1.5370 all the way up to 1.56 as markets were caught by surprise when Trichet not only indicated no cuts were in the bank’s plans, but a raise may come as early as next month. This is not something Mr. Trichet and his pals are in a habit of doing and therefore were welcomed with Euro buying all across the board. The fact the bank said it “is in a state of heightened alertness”, in combination with higher inflation and a need of raising rates, drove the Euro bulls to push the pair towards the recent highs.
There is a lot of speculation whispered around trader’s desks that Trichet planned his words very carefully regarding future interest rate hikes, at a point when the Euro was getting slammed all across the board due to dollar strength and bad Euro zone economic data. Many say the ECB doesn’t want a weak Euro and their plan is to make the European currency the strongest in the world. Whatever the case, one thing is for sure: after Trichet’s comments, it will be very difficult for dollar bulls to take control again and despite what Bernanke said about inflation, it will take more than a few comments to restore any confidence regarding the US economic recovery.
Another factor for the dollar’s weakness can be found in the recent oil appreciation, which on Friday saw a move of eleven dollars. The oil printed new record highs due to recent Trichet comments and other geopolitical reasons. The next target for the oil seems to be $150 per barrel and if dollar continues to be sold off, we could see $150 sooner rather than later!
The fact the DOW JONES printed big losses on Friday certainly put risk aversion back in the game, and therefore we could see some selling in all yen related pairs, with USD/JPY potentially breaking lower and GBP/JPY maybe a good sell opportunity at 209 (a strong resistance level) for a move towards 205 I the next coming days. All this will depend on this week’s data and if there is further weakness in stocks.
Let’s not forget the G8 meeting that we had last weekend, where the finance ministers and central bankers gathered in Japan to discuss recent world economic developments. The conclusion of this meeting was that high inflation is affecting most world countries due to high oil and food prices. There was a lot of talk and speculation that Saudi Arabia will raise its oil production but that was later denied from Iran which said that oil production is sufficient and the reason for oil rise was purely speculative.
The EUR/USD broke important resistance levels and as long as it trades above 1.5450, it’s looking for further strength. Next resistance is at 1.5620 and a clear break puts 1.5660-1.57 as the next target for the pair, however, before the continuation of the move up, there may be a slight correction downwards to 1.54, as many Euro bulls will want to take advantage of buying on dips.
The last important economic event of this month will be next week’s Federal Reserve interest rate meeting which will definitely determine the next market move. The analysts predict that Bernanke will leave interest rates unchanged, but there is a lot of speculation that the bank will eventually raise its rates due to high inflation. The comments after the decision will play a big role in all market movements and if indeed there is a hint that rates will be raised as soon as next month, the dollar will appreciate against all currencies and therefore the stock markets will fall.
All these events affect Greece’s economy, which although has made progress in the last few months, as the latest economic data printed better than expected numbers, one thing remains certain: high oil and food prices are a great concern amongst the consumers and if that continues through the next few months it will dampen the economic outlook considerably.
Published on Tue, Jul 1 2008, 10:05 GMT
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Make or Break Time for the Dollar!
Mon, Jun 30 2008, 12:04 GMT
by Lena Manousarides
This week is set to be crucial for the dollars direction, as we have two very important economic events to look forward to; the ECB rate decision together with Trichet’s speech and the non-farm payroll data.
Let’s start with what happened in the markets last week, as there was a big liquidation on Thursday in all markets, with DOW JONES and NIKEI dropping more than 300 points after Citigroup and several other big companies revealed more than 7000 job reductions. The fact the US economic data was negative for the dollar together with risk aversion hitting the markets; the dollar was driven down against the Euro and carry trades deteriorated.
Last week’s big event was the FOMC rate meeting which returned unchanged as was widely expected; however the statement left traders disappointed as it didn’t deliver any hope for a rate hike in the next meeting. Markets were pricing in that after positive comments from Bernanke and co-members, the bank will be even more hawkish in its policy stance but due to bad economic data and renewed recession fears the bank failed to give a positive message. The dollar was weak after the announcement and EUR/USD pushed higher more than 100 pips in just a few minutes.
The other event of the week was carry trade liquidation, which saw EUR/JPY, GBP/JPY and USD/JPY dropping more than 200 points, following the DOW JONES. The negative sentiment is clearly back in the market. EUR/JPY made new life time highs at 169.50 but the move didn’t find any followers and the pair sold off together with all yen related pairs.
Today, Monday, is the last trading day of the month, and traders are closing their trading books for the second quarter, so volatility is expected to be high, with choppy moves likely as liquidation takes place all across the board. The yen related pairs continue the sell-off, but are rising to strong support levels, USD/JPY at 104.60, EUR/JPY at 165.60 and GBP/JPY at 209-209.30, so a consolidation from those levels might occur before renewed sell moves arise.
Today the economic calendar is quite empty, with only important economic release being Chicago PMI. Analysts predict that data could be negative, which may push the dollar lower once again.
However, all traders think about this week is Thursdays ECB rate decision, which is expected to be a hike of either 12.5 points or 25 points. The fact that Trichet was hawkish in the last meeting, leads everyone to expect a rate increase, but the level of increase is not yet clear. Many believe that the bank might just go ahead and hike 25 points and then pause for a period of time, or hike 12.5 points now and the other half in the next meeting. Whatever the outcome, the Euro will be very volatile on that day and if the bank hikes more than 12.5, we might see break up towards 1.60.
Let’s not forget though, that on the same day at same time as Trichet’s speech, we have the other big event of the week, the non-farm payroll from US. The number is expected again to be negative at -60000 for a sixth consecutive month. The recession bells might start to ring once again, as in the time of recession in the past, we have negative number for 10 consecutive months. A negative number, together with a hawkish Trichet may be the end of any dollar rally in the near term, leading to new highs in EUR/USD. The chance of a positive number is slim, as data so far suggest contraction in the economic figures and jobless claims were high in the last few weeks. It will also be interesting to watch the ISM numbers, which are expected to be worse than previous months, suggesting more dollar weakness in the coming weeks.
EUR/USD still trades within 1.5550-1.5850 and a clear break of the latter may see a move up towards 1.5900-20, potentially setting up resistance before the rest of the week’s data.
GBP/USD is trading just below the $2 level and if the data helps, it may break with 2.0050-2.0100 coming into view. From those levels the Pound could correct as the economic data will not support further appreciation. In King’s speech last week he sent the message that inflation is high and the bank needs to act in order to bring it down. However, this is easier said than done as more negative numbers are coming out daily and therefore the bank will find it difficult to hike more than once.
Let’s see how the markets will move after today’s month end and if the dollar will still manage to surpass all negative sentiment that is built over the last few days. The question will be now; which economy is performing better, Euro zone or America? I think we all know the answer, so let’s trade this information accordingly…for now anyway.
Published on Mon, Jun 30 2008, 12:04 GMT
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FX Weekly Commentary
Mon, Jun 23 2008, 11:59 GMT
by Lena Manousarides
Will This Weeks FED Rate Decision Give Dollar The Long Awaited Rally?
Comment by Lena Manousarides [ lena@fxgreece.gr ]
Another week starts with the EUR/USD falling sharply from 1.5625 all the way down to 1.55 after worse than expected IFO data from Germany. The fact that the number was lower than expected, together with PMI below the important 50 level, puts pressure on the Euro where a clear break of 1.55 would bring 1.5440 back in the game.
Last week we saw the Euro gaining all across the board, especially against the dollar and the Japanese yen, after the oil moved close to $140 per barrel. An article printed in the New York Times stated that Israel had some military activity earlier in the month which was immediately perceived as a “war rehearsal” against Iran. The news found traders buying the Swiss currency as safe haven therefore the USD/CHF fell more than 150 points, which in return made the dollar weaken against the Euro.
This week traders have one thing and one thing only on their minds: the FOMC meeting, where the dollars fate will be determined. Analysts predict that Bernanke will leave rates unchanged, but the general feeling is the statement after the decision will be hawkish due to both high inflation and comments from US officials that the dollar should be strong. However, all that is easier said than done! The question is, will Bernanke “walk the walk” after all the hawkish comments heard in the last few speeches? If the statement fails to hint at any rate hikes for the coming months, the dollar will be sold off all across the board; as the market doesn’t like it to be proved wrong! It will be very interesting to see the EUR/USD reaction afterwards and the outcome will either “make or break” the greenback.
Also this week we have Durable Goods orders which the traders will look at in order to determine the state of the economy. If the number is negative again, this will also weigh in the dollar and further weakness could be in the picture. Later on in the week, we have the GDP and new and existing home sales, which is expected to be better than last month’s figure. The latest housing data was disappointing which put further pressure on all yen related pairs, as carry traders exited their long positions and caused DOW JONES to fall more than 200 points on Friday. New fears of more US security firms declaring losses kept stocks and risky trades at low levels and this week it will be crucial to see how all these affect the FED rate decision.
EUR/USD is moving lower as from this morning and the next level to watch is 1.5480 where it may hold with good support. If the level gives way we may see further moves to the downside towards 1.5380-1.54. On the upside there is resistance at 1.56-1.5650, but a clear break of those levels puts 1.58 back in the game.
GBP/USD is trading between 1.9550-1.9750 and a clear break of those levels might give us the next direction.
The main news for the British Pound this week is the MPC meeting where King testifies in front of the Parliament for the state of the UK economy, and his plans regarding the interest rates. This speech will be very important for the pound as most analysts predict that due to high inflationary pressures, BOE could have to hike its interest rates again in the coming months. The job of King and his co-members is rather difficult as he has to manage fighting higher inflation with lower growth. It will be a question of what is more important for the economy and if the bank chooses to ignore the negative data and concentrate on high inflation, the pound may push up towards 2 in the coming months.
Let’s see though how the market will react to this week’s economic events and if Bernanke once again comes to dollars rescue with any comments due after Wednesday’s decision…
Published on Mon, Jun 23 2008, 11:59 GMT
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Dollar Comeback Proved to be False! More Weakness Ahead?
Mon, Jun 9 2008, 10:47 GMT
by Lena Manousarides
What a week we had last week, with EUR/USD moving like a rollercoaster form 1.56 down to 1.5370 and then all the way back up to 1.5780 where it closed Friday night at New York.
The week started profitably for the greenback, following comments from Chairman Ben Bernanke that the US economy is getting stronger and inflation is at high levels, something which the bank doesn’t like and will do everything in its power to avoid. These comments were taken from the markets as a FED warning that interest rates won’t get any lower, but on the contrary the bank may raise them in the coming months. That alone was enough for the dollar bulls to take over once again and send the pair down towards 1.54. The better than expected ISM number showed more dollar strength and we saw EUR/USD breaking the important support of 1.54 and printing new lows for the week at 1.5360.
But, when we started saying that dollar is doing a comeback and more dollar strength is coming, Mr. Trichet came back with vengeance and took away the entire dollar’s recent progress. The European Central Bank left its key rates unchanged but in the press conference that took place after the decision, Trichet was more than hawkish and his words were so powerful and unexpected, the EUR/USD experienced a big push up towards 1.57. The pair skyrocketed from 1.5370 all the way up to 1.56 as markets were caught by surprise when Trichet not only indicated no cuts were in the bank’s plans, but a raise may come as early as next month. This is something that Mr. Trichet and his pals are not in a habit of doing and therefore was welcomed with euro buying all across the board. The fact that the bank said that it “is in a state of heightened alertness”, in combination with higher inflation and a need of raising rates drove the euro bulls to push the pair towards the recent highs.
There is a lot of speculation that goes around trader’s desks that Trichet planned his words very carefully regarding future interest rate hikes, in the time when euro was getting slammed all across the board due to dollar strength and bad euro zone economic data. Many say the ECB doesn’t want a weak euro and their plan is to make the European currency the strongest in the world. Whatever the case, one thing is for sure: after Trichet’s comments, it will be very difficult for dollar bulls to take control again and despite what Bernanke said about inflation, it will take more than a few comments to restore any confidence regarding the US economic recovery.
This week the economic calendar is lighter, however some important data is coming from the US and Europe. Let’s start with today’s data, first we have the UKs PPI, which will be closely watched by the markets in order to see if there are high inflationary pressures on the UK economy. The fact that last week the bank chose to leave rates unchanged does leave room for speculation that if the inflation data continues to print higher numbers, the banks job will become very difficult and stagflation maybe unavoidable. Let’s not forget that almost all economic data out of UK continues to disappoint, with housing market numbers getting lower every week.
The other news for today is from the US; pending home sales. The forecasts predict a slightly better number this month, but if the data disappoints, we may see further dollar weakness.
In the next coming days we have trade balance, retail sales and CPI data out of the US. All these will be monitored closely by the markets, especially the inflation data, for any indication of what FED will do in the next coming weeks. Let’s not forget a speech by Bernanke’s this week in Massachusetts regarding inflation which will be very interesting to hear.
Another factor for the dollar’s weakness can be found in the recent oil appreciation, which on Friday we saw a move of 11 dollars. The oil printed new record highs due to recent Trichet comments and other geopolitical reasons. Next target for the oil seems to be $150 per barrel and if dollar continues to be sold off we could see $150 sooner rather than later!
The EUR/USD broke important resistance levels and as long as it trades above 1.5450, it’s looking for further strength. Next resistance is at 1.5820 and a clear break puts 1.5860-70 as the next target for the pair. However, before the continuation of the move up, there may be a slight correction downwards to 1.57, as many euro bulls will want to take advantage of buying on dips.
The fact the DOW JONES printed big losses on Friday certainly put risk aversion back in the game, and therefore we could see some selling in all yen related pairs, with USD/JPY potentially breaking lower and GBP/JPY maybe a good sell opportunity at 209(a strong resistance level) for a move towards 205 I the next coming days. All that will depend on this week’s data and if there is further weakness in stocks.
Let’s see what this week will bring us and how the traders will react to the releases. The market sentiment is back to dollar negative, which may stay for a while, especially if the US data continues to disappoint. Also, it will be wise to monitor the oil moves this week, as the correlation of EUR/USD to oil is very close and if the latter starts to correct from recent new highs, it will weigh on EUR/USDs recent strength…
Published on Mon, Jun 2 2008, 11:39 GMT
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This week's data will determine dollars fate! 1.50 Or 1.60 next target for EUR/USD?
Mon, Jun 2 2008, 11:14 GMT
by Lena Manousarides
Another week has started, with the economic calendar full of important releases. This week will definitely give us some idea regarding the dollar direction and most importantly if EUR/USD is heading again towards recent highs…
Let’s start with what happened last week, as we had a new profound dollar rally that lasted most of the days till Fridays close. The news from US was all positive for the dollar, with durable goods orders, GDP and new home sales printing better than expected numbers. This caused dollar to appreciate against most of the currencies and especially the euro. EUR/USD broke important support levels of 1.55 and printed new daily low at 1.5450.
One other reason for dollars rally was due to the oil drop from $133 per barrel to 125. The move was seen as a liquidation of long positions due to comments from many officials that oil prices are getting out of hand and something must be done to stop this. Although crude oil inventories were much lower than expected, oil still dropped dramatically after comments from OPEC officials stated that there might be an increase in oil after a few months.
The question now is whets next for the dollar? Will this week be dollar positive or will it put dollar bulls back on the defensive?
Well, the economic news out of US are many, with ISM Manufacturing and non manufacturing due out today and in the next few days. These numbers are vital for the state of the US economy and analysts predict that both will come out lower once again. However if there is a surprise to the upside and we have better than expected data, that will support the greenback and we might see further positive moves.
Traders will be very wary this week though, as Thursday and Friday are very crucial for all markets. On Thursday we have the ECB rate decision, which is expected to leave the rates unchanged. Later that day, TrIchet is speaking in front of the journalists and we expect a lot of volatility during his speech. The sentiment generally amongst traders is that Mr. Trichet and co will be hawkish once again, even though some economic data disappointed lately. Comments last week of the IFO presiden