• Home ::
• Fundamental ::
• Market View ::
• FX Daily Update

• Send
• Print
• Add To
• Rss

FX Daily Update

This report has been deactivated

Lower Consumer Prices Mean Lower Dollar?

Wed, Nov 19 2008, 14:18 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

As the week unfolds, we see further market losses, and further negative sentiment to continue being the number one moving factor for traders across the globe. Asian markets continue to trade lower and European markets although are trading relatively steady, still they print losses.

Yesterday, Bernanke and Paulson’s testimony did not manage to provide something new for investors as many predicted and now traders are waiting for further economic data in order to make their next move. It does seem like market participants are waiting patiently for the next “explosion”, reminding us of the days before the last market collapse.

Today’s economic calendar has a few releases which traders may follow, with the BOE minutes the most important event for the pound, and the US CPI number that traders are expecting, in order to see how the inflation pressures are affecting the US economy. The BOE minutes showed the bank was contemplating an even deeper cut in the last meeting showing clearly the next move may be other 50-100 points cut. Markets have already priced that in, however there is always the element of surprise and if the bank decides to cut even more then the pound will continue to fall all across the board.

The GBP/USD still trades below 1.51, seemingly rejecting the 1.49 support level and bouncing back nicely. This move is likely to be corrective before falling further and only a clear break of 1.52-1.5250 can alter the downside scenario for now.

The EUR/USD is still trading within the range of 1.25-1.28 and looks like it is stalling before something bigger happens in the coming days. If the negative sentiment continues and the markets continue to fall, the dollar will appreciate further and therefore the pair will continue to trade lower. The next important support level is 1.2330 ahead of 1.2360.

US consumer prices fell the most in 61 years today, showing economic conditions continue to deteriorate faster than firstly anticipated. Analysts predict that the FED will welcome this news with further easing of interest rates in the coming weeks and the dollar could be met with further buying amid more concerns about the economic future. The price of oil has shrunk in the last months which may continue thanks to the precarious economic state.

The dollar may continue to rise in the coming days, however traders are wary of an imminent dollar sell off as we are moving towards the end of the year. In an interview some days ago, the new president of the US, Barack Obama, said the government does not really care about the trade deficit at this moment in time and the only priority is and will continue to be, the current economic crisis and how to fight it successfully. If we analyze that statement, we may find the dollar will start to weaken later on as a bigger deficit means a lower dollar.

However, investors are not thinking that far ahead and the only thing in their minds is getting away from other currencies as the dangers of other currencies deteriorating and even stop existing are greater than that of the US dollar. We know the US is likely to fall into recession and their economic data is disappointing to say the least, however the US is still considered a superpower and the dollar is unlikely to disappear no matter how bad things get.

Published on  Wed, Nov 19 2008, 14:22 GMT