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FX Daily Update

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Markets Falling, Dollar is Rising: Bears and Dollar In it Together?

Thu, Nov 20 2008, 14:16 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

What a day turned out to be yesterday, with markets taking a slump in New York and DOW JONES ending the day 400 points lower printing new multi year lows. Asian markets continued in the same manner and the same thing happened in European session. It is clear that traders continue to worry about the worsening global economic conditions and at the end whatever happens, risk aversion always wins!

EUR/USD made an impressive turn too yesterday, after it hit intra day high at 1.2820. The move did not find any followers and therefore it dropped all the way below 1.25. The latest range of 1.25-1.28 is still in play and although the pair dropped briefly below 1.25, the move found temporary break at 1.2470. If the later level gives way today, next level to watch is 1.2360.

Today the economic calendar does not have any important releases, and apart from retail sales we saw earlier out of UK, which again fell for yet another month, the only other data are the jobless claims and Philadelphia Fed out later. Traders are not focusing so much at the data lately, however the more negative news we get about the economy the bigger chances to have another sell off in the global markets.

The surprise event however came from the Swiss National bank, when it announced this morning a sudden rate cut of 100 points in order to stabilize things in the economy and meet their inflationary targets. The move was not expected at all today, however traders know that in desperate times we need desperate measures. The Swiss franc fell across the board, with USD/CHF making new multi years above 1.22 and EUR/CHF appreciating more than 200 points in the aftermath of the news.

All market participants are now wondering what next, as many now speculate that other central banks may follow SNB and cut rates before the scheduled monetary policy meeting. Already traders have priced in further cuts from both ECB and BOE and some say that FED might be forced to cut even further in order to “save” the economy from collapsing further.

With news daily hitting the wires of further bank losses and corporate earnings , traders hopes for a better and healthier market environment start to fade and the only way to go for now is either to remain a spectator or join in the fall. It does look like things are likely to continue in the same manner and for now whatever efforts we see for an upside rally; the bear market is very much a reality. For now, traders should stop trying to find a bottom and just admit that the economic situation is too unstable that any upside moves are turning out to be simple corrections before the downtrend resumes again. And the more the markets fall the more the dollar rise along with investors insecurity for the economic outlook!

For sure, at some point the bull market will resurface again, maybe next year if things stabilize a bit, however for now it looks like the bears will win, more out of necessity rather than technical or fundamental factors…

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