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FX Daily Update

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Dollar Seems to be the Victim of Positive Market Sentiment!

Mon, Nov 24 2008, 15:17 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

A new week has started, with Japanese market closed for national holiday and European markets trading positively after news hit the wires during the weekend, that FED has stepped up to help the troubled Citigroup with further cash injections and loan guarantees. The sentiment was already positive on Friday night New York close, after Obama revealed that Timothy Geithner will take over from Treasury Paulson in the coming days. The markets seemed to like that option and the hopes of a better economic tomorrow resurfaced again, sending DOW JONES up more than 400 points before closing.

Today we had news from Euro zone, with German IFO printing yet another lower number and euro continuing to trade below 1.26 after the news. The fact that all economic data out of Europe lately disappoint, gives another reason for speculators to predict that ECB will cut rates in December’s meeting. Today the only other important release is coming out of US and it is the existing home sales which are expected again negative for the economy.

EUR/USD is trading higher today, after it broke important resistance level of 1.2720 and moved even higher at 1.2820. The pair so far didn’t manage to break the latter level; however a clear break of 1.2830-50 will open room for more gains towards 1.29. The move came today on the back of higher stocks and oil and as long as 1.27 holds, we might be up for more gains in the coming days.

This week will be very crucial for dollar direction as apart from the economic data we also have the Thanksgiving Day and like every year, that day we see big breakouts in EUR/USD and so this year doesn’t look like it will be exception. The fact that stocks have started to gain shows that dollar might be in for further losses during this week and maybe Thanksgiving Day is the day that it will happen! Don’t forget that in the previous years, that holiday in the US gave the opportunity for the pair to break important psychological levels like 1.30 back in 2006 and 1.50 back in 2007. So let’s see until Thursday how traders will interpret all the economic events and how they will weigh the outcome of the economic data.

The fact that risk aversion is still a threat makes all the upside scenarios less optimistic, however with the new rescue plan that FED presented to Citigroup, investors feel some kind of relief that the worse might be avoided. In December usually we see dollar weakness and with traders squaring up their gains of all those months of dollar strength we could easily see further upside in EUR/USD towards 1.35.

However, let’s wait and see what happens in the Euro zone area before we rush to buy the euro as dismal economic data could spark a new wave of rate cuts by ECB and further negative sentiment in Euro zone…

Published on  Mon, Nov 24 2008, 15:21 GMT