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It is That Simple: Dollar is Up as Long as Investor's Sentiment is Down…

Wed, Nov 26 2008, 14:40 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

The day starts with markets falling across the board and the fact that more negative news hit the wires regarding the global economic future does not help trader’s confidence! DOW JONES didn’t manage to build up on the three days rally and so it fell yesterday together with Asian and European markets today. The market “domino” is so clear. Its starts with US futures, continue in Asia and ends in Europe with dollar appreciating as a result.

EUR/USD is trading lower again and the fact that we saw a euro rally for two days does not by any means alter the downside scenario for the pair, as risk aversion comes back to hunt it! The pair stopped the upside move at good resistance level of 1.3060 and from then on it fell more than 100 points all the way down to 1.29. For now as long as 1.29 holds we might see some further upside however with Thanksgiving Day just around the corner all bets are off! A clear break of 1.2830 will alter the upside scenario for now and make dollar bulls the ones in control.

Today the economic data out of UK were dismal for the pound, as the GDP numbers contracted for yet another month and made recession now a sure thing. The pound managed to correct since Monday towards 1.55 as we mentioned but the negative data do not let sterling run wild. As long as 1.54 holds we may see further downside for the pound however once again tomorrow’s thin trading conditions can be rather unpredictable.

The market participants were waiting anxiously for the durable orders out of the US and when the news hit the wires that they fell almost double than anticipated, the fear and uncertainty returned. No matter how much traders want and need to believe that the economic crisis will come to an end, bad news like that do not help and make every positive market sentiment fade away. Next we have consumer confidence out of the US and also new home sales which traders will monitor closely.

News that China lowered their interest rates once again for the most since 1997 has left traders shocked and frustrated, and the speculations of worsening economic conditions globally are getting now even bigger. The announcement of China couple of weeks ago about a stimulus plan of $586B in order to help the deteriorating global economy, gave some relief in investors, however since then the country’s growth has slowed down according to the latest numbers and the extreme easing in rates shows that there is desperation and uncertainty.

The bottom line is this: we all want to see the positive sentiment returning in the markets and we are all for normal trading conditions without economic worries and panic , however it is clear that we are not there yet and there is a long way till we reach that point. If we think about it logically, it is not very difficult to predict the markets next move. As long as bad data surrounding us and instability rules the way to go looks more likely to be on the downside.

So therefore, until we see signs that the risk aversion is no longer a threat, we may as well go with the flow. One look in the US, Japan and European future market can tell you where the dollar is heading next. So far the markets are telling us that dollar may be here to stay…

Published on  Wed, Nov 26 2008, 14:42 GMT