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FX Daily Update

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Dollar Weak Again! Is This The Start of Something Bigger?

Tue, Nov 25 2008, 15:18 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

Another day, another hit for the dollar, with EUR/USD finally breaking 1.30 after two days of solid gains and opting higher in a move driven mainly by rise in stocks all across the board.

EUR/USD finally left the 1.20 something mark and now is trading back above 1.30 with 1.3080 daily high at the time of writing. If the pair takes out the latter level then we may see further gains towards 1.3150-1.32 in the coming days or even sooner.

GBP/USD is on the rise as well today, after breaking important 1.5150 and taking out stops only to print another 200 points. So far daily high is printed at 1.54 and the pair seems to have more upside coming. Next level to watch is 1.5480 ahead of 1.55.

The new found euro and pound rise has to do mainly with dollar weakening due to investor’s confidence being restored in last three days. It all started on Friday with news that Obama is tackling the economic problems by appointing his team right away, and it continued all Monday and today after it became known that Citigroup is being “saved “ by FED coming to the rescue with cash injections and loan guarantees. However, what this is really all about is the traders need to start believing a better future could be coming, when it comes to the crisis, and the very fact that the new US government has already stated that they have plans to unfreeze the credit markets.

DOW JONES gained yesterday for a second consecutive day more than 900 points all together and NIKEI followed in a positive territory as well. The market sentiment seems to be getting more positive lately and that is why the dollar gets sold off again, as investors don’t see the need to buy it as a safe haven currency any longer. However, be aware that the minute risk aversion comes back and investors lose their faith once again, the dollar may start to appreciate again. There are no clear reasons why the euro should go too much higher against the buck, what with its own economy suffering and the prospect for further rate cuts by ECB always present. Nevertheless, it is nice to see the long awaited correction unfolding in the euro and the pound and let’s see how long it will last.

Today the economic calendar had some news out of Europe, with GDP coming negative once again and UK data printing slightly better numbers. Yesterday’s Parliamentary hearing from Darling, did good to the pound as he outlined new plans for fighting recession and also cutting VAT in order to put money back into the consumers’ pockets. Today, King reassured that the BOE will do everything in their power to fight back the crisis and make the UK economy healthy again. We also had GDP out of US which came out weaker but didn’t really provide any reaction from traders.

We need to be aware the market rally we are experiencing could very well be short lived, due to the constant worries of the global crisis and the risk aversion which seems to hit when least expected. Don’t forget, times have changed since the summer and markets have become very unpredictable and therefore strong bullish signals in the charts can be reversed in no time!

All traders want these days is to be able to pick the lowest level and make their buy! However, the boy who cried wolf taught us one thing: after many failed rally attempts, when the real thing starts, no one will trust it until it’s too late.

Published on  Tue, Nov 25 2008, 15:22 GMT