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FX Daily Update

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Dollar Bulls Are Still in Control But for How Long?

Fri, Nov 21 2008, 13:40 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

Another week is finishing today, with Asian markets gaining overnight and European session trading mixed after earlier rumors that Citigroup is up for sale. The bank lost heavily this week with the stock price falling to 15 year low. Investors have lost their confidence in the bank and they already have priced in the worse which would be a bank failure and bankruptcy. However, after yesterday’s losses it was made known today the board of directors are meeting later to discuss options for the banks future. Analysts predict that the bank may be open for a sale however until we hear something official, all scenarios are possible. If a satisfactory decision occurs, then we might see some relief rallies in the stock markets later on.

EUR/USD is trading still within tight ranges, however the pair’s earlier sell off was not enough to take out 1.24 and therefore the dollar was sold aggressively against the euro. At the time of writing the pair hovers at 1.26 and a clear break of 1.2660 will open way for 1.2730. The pair’s direction may be determined according to how DOW JONES will trade and if stocks trade positively after 2 bad days, we might see further gains for the euro. At this point the only thing that stops the pair breaking 1.28 is risk aversion and if we see change in sentiment then more gains will be printed next week, towards 1.30.

Today the economic calendar does not have any important releases out of US and all the ones out of Europe earlier showed the Eurozone’s economy is still struggling. There is a speech by Trichet soon and traders may monitor his words for any hints as to what will happen in the next monetary meeting. Most investors have already priced in another cut at the next meeting, however some comments by ECB members today showed that Trichet may not want to over cut rates just yet.

The yen also weakened during Asian session and continue to trade on the downside during the day. There is some risk appetite resurfacing all across the board and it has to do mainly with speculations that Citigroup’s decision today might be positive for market sentiment. It will be interesting to see how DOW JONES opens and if today which is the last day of the week we see a rally from recent multi year lows.

Don’t forget that next week we have the Thanksgiving holiday in the US and it is a fact that almost every year something major happens on that day. History shows that due to low liquidity and thin trading conditions the moves are usually exaggerated and the dollar is victim of the holiday by loosing heavily against the euro. If that happens this year, stops might get hit on the upside and before we know it we may see the long awaited correction!

However, it will be crucial to hear how today’s meeting with Citigroup goes and if the results favor a market rally. After all, sooner or later the market bulls will have another go to the upside and we’ll see how long it will last before risk aversion kicks in…

Published on  Fri, Nov 21 2008, 13:44 GMT