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Another Day Another Dollar Rise!

Wed, Dec 3 2008, 09:59 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

The markets have spoken: risk aversion is still the name of the game and that was obvious since the beginning of the week. The dollar strengthens once again against the euro and the other major counterparts in correlation with the stock’s performance the last few days. DOW JONES gained slightly yesterday after the big fall of 700 points that we witnessed on Monday, amid worries for the global economic future.

The news that automaker FORD was getting help from the FED and a loan worth many billions, gave some kind of relief in traders already negative mood, however the latest statistic data confirmed what we all knew but afraid to admit: that US is in recession! Analysts predict that the latest recession might be a severe one and therefore Bernanke and co might have to lower rates once again and adopt Japans zero rates policy. This Friday we will see just how bad things are once again in the employment sector, as we have the nonfarm payroll data. The forecasts give another nasty number of more than -200.000 jobs and that will add to the already dismal economic outlook.

EUR/USD is trading within range of 1.25-1.28 once again and although yesterday we saw a brief try of 1.2550, the latter level worked as a good support and the pair gained more than 150 points. However the short term rally found resistance at 1.2750 and down we went again! Until we see a clear break of either 1.2830 or 1.2530 the range remains intact and traders may want to wait until tomorrow’s important ECB rate decision. Euro is waiting patiently for Trichet and his pals to set the tone for the coming days and a really dovish statement may “help” the single currency to continue its recent slide.

Today the economic calendar has a few important releases, starting with PMI services from UK which printed another negative number and moving on to the ADP report out of the US later today which will give us the first taste of how the payroll number will be on Friday. The ADP report although is not the most reliable of all in terms of the actual number, however it may set the tone for traders until the real thing on Friday. Also later today we have ISM Non Manufacturing and another really low number is expected.

We are in the middle of the week today and things in the global markets continue to look all doom and gloom. It will be interesting to see if US futures rise today or if yesterday’s gains were a one off thing for this week and if further downside may come from now until Friday. Don’t forget that tomorrow we have the ECB and BOE rate decisions and both will be crucial for the direction of the pound and the euro.

Potentially, both currencies may continue to slide in the coming days, as dollar is still the currency that traders prefer and a combination of heavy rate cuts by the two banks and continuing risk aversion could make dollar the “only” currency to buy for now…

Published on  Wed, Dec 3 2008, 10:04 GMT