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Is it Time for Dollar Bulls to Back Off?

Thu, Dec 11 2008, 10:42 GMT
by Lena Manousarides

FXstreet.com Independent Analyst Team

Euro and Pound finally show some long awaited strength, with EUR/USD breaking important resistance level of 1.3080 early this morning and printing daily high at the time of writing at 1.3150. The pound followed euro’s strength but still is trading weak and so far GBP/USD did not manage to take out 1.50.

EUR/USD is trading heavily since the beginning of the week and a daily close above 1.31 may give euro bulls something to celebrate for now and eventually give the pair more upside strength towards 1.33. It will be very interesting to see how the pair moves after the New York open and if it can sustain its gains above 1.30. Any move below 1.30 in the coming hours may show us once again that dollar is getting bid at any correction.

GBP/USD is trading still on the defensive, and the main reason of pounds strength seems to be EUR/GBP making new record highs almost every day. The pound is much weaker than the euro and traders are betting that the UK economy is slowing much more the Euro zone according to the economic data and also the interest rates differentials. Don’t forget, that at the end of the day, what still matters in the markets are the interest rates and the expectations for further easing. Next level to watch for the pair is 1.5050 a good resistance level and also a recent top. A clear break of that level opens way towards 1.52.

Today the economic calendar has a few important releases out of US but not much happening in the Euro area or UK. Also we had the Bank of Switzerland rate decision earlier and the bank cut its rates as expected by another 50bps. USD/CHF is trading lower since yesterday, reflecting on EUR/USD and traders had already priced in a cut by 50 points, therefore they sold the dollar against the Swiss Franc in the aftermath of the decision.

The data to watch from the US are the trade balance later today, which is expected to be slightly better than last month; however the traders may give their attention to the other important news, the jobless claims, what with the latest payroll data being so negative. Either way, both economic events will be monitored closely by the markets and if we see a really high number of unemployment claims it will be another dent for the already negative market sentiment.

We are almost half way in December now, and we notice dollar weakening across the board and that as we said before was not surprising as historic data shows that the end of year always finds the buck sold. Don’t forget that traders are getting ready to close their trading books and square their profits and therefore that finds willing sellers in the dollar through December.

However, it will be very interesting to see how the New Year finds the markets and especially the dollar. My personal feeling is that sooner rather than later, the greenback may continue its gains against the euro and opt for the previous 4 year lows below 1.20.The days of glory for the European currency seem to be behind us for now, however as we know very well, markets moves in cycles and the time for the euro to rise may come if enough speculations gather, regarding a better European economic growth…

Published on  Thu, Dec 11 2008, 10:47 GMT