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FX Daily Update

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Euro and Pound Struggle to Gain Which Could Mean More Weakness Ahead!

Thu, Nov 13 2008, 14:19 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

Its official! German economy entered recession. The latest GDP numbers out of Germany showed that the economy contracted for the second consecutive month and therefore the country now faces the wrath of the global financial crisis. Euro was down after the news all across the board and especially against the pound which it printed new life time high at 0.8455.

EUR/USD was trading around 1.2460 at the time of GDP data and the pair made a break of 1.24 briefly to find support at 1.2380. From then on euro corrected towards 1.2550 after the move was whipsawed in a matter of minutes. The pair is trading still heavily and the question is not if there will be further downside, but when! Next level to watch is 1.2330-50 and if that level gives way then 1.22 might be next target. Let’s not forget that 1.2330 is at the moment the lowest level seen for many years and traders might try to keep the double bottom intact. However with dollars recent rally and the prospect of further gains due to risk aversion, EUR/USD could easily fall to 2005 lows at 1.18-1.20.

Today’s calendar is quite empty apart from the GDP numbers from Germany we had in the morning and the trade balance numbers we had form the US, which didn’t really catch traders attention and it was a non event altogether. The numbers showed that trade deficit narrowed further last month at -56.5B and that is not a surprise as stronger dollar means smaller deficit. Dollar looks unchanged after the data and it will be interesting to see New York open and how the currencies will behave in relation to DOW JONES. Oil is trading on the downside too, and today it was trading below $55 per barrel which also fuels further dollar strength.

Markets continue their free fall with NIKEI dropping more than 400 points overnight and European markets still trading negatively too. It looks like DOW JONES will continue in the same manner and the latest proofs that Germany , UK and US are facing recession gives traders more worry that more countries will follow. The fact that US Congress is talking about the bailout plan once again and is thinking of ways to add or alter a few parameters means that the government is quite nervous about the crisis and does not really believe that the rescue plan will be enough to fix the long term problems in the US economy.

Nevertheless, when traders smell the fear in Government or FED statements, they panic and continue to liquidate their assets which cause further collapse in the markets.

Yen and Dollar continue to be the flavor of the month in November and this might continue to be so, until at least the end of the year. It will be very interesting to see how markets will react to the year end and where January will find EUR/USD and GBP/USD. Let’s not forget that same time last year the euro was climbing new tops every day and it was on its way to 1.70 according to many economists and specialists. Well, forget all that and all Euros past glory as it will be a miracle for now even if we see 1.40 anytime soon. Until we see signs of stabilization in European economies and signals that ECB is done with easing rates, then euro might spend the last months of the year trapped between 1.20-1.30…

Published on  Thu, Nov 13 2008, 14:20 GMT