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The Week Ahead

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results in the spotlight, the dollar and the pound still under pressure

Mon, Oct 12 2009, 11:07 GMT
by Przemysław Kwiecień

X-Trade Brokers, XTB

A calm start of the week might be a bit deceiving. While the bunch of macroeconomic releases might not be that crucial for the market, investors will be speculating on some crucial earnings reports later in the week. The speculation will be fueled by the fact that major stock market indices and currency pairs are at the key long term levels.

The stocks didn’t need a lot of time to shrug off another correction attempt made two weeks ago as a result of weaker US macro data. After a rebound in the last week, major stock indices are still a notch below the highs and actually Germans (DAX30) did manage to climb above those levels in the early Monday trade. If this bullish sentiment is about to persist (and buoy US indices to new highs as well) depends more on the earnings report rather than macroeconomic data (CPI, retail sales and industrial output on both sides of the Atlantic). Goldman Sachs and Google release reports on Thursday and Bank of America and GE on Friday but actually a speculation on these numbers might have already started.

At the same time, the dollar is still under pressure. Its lows against the yen and the euro are still very close and the situation is further heated by the report showing central banks slowly diversifying their reserves away from the dollar. On Friday, the USDJPY defended a support at 88,00 which sparked a bounce back to a resistance at 90,40 probably on fears on the Japanese fx intervention. While support lines at 87 and 88 yens for the dollar look strong for a while in a longer term, the Japanese government might not defend those levels unless it encourages other central banks to cooperate (unlikely) or the Fed heads to higher rates. Taking this into account, the long term downtrend on the pair seems to be safe and sound.

While the dollar is in defense against yen and euro, it still continues to appreciate against the pound which is the weakest currency among majors. Last week’s BoE’s decision not to change monetary policy parameters buffed the pound only for a short while. The Cable faced resistance at a previous local maximum 1,6125 and reversed sharply to test a support at 1,5770/1,58. The test was successful on Monday’s opening in Europe and it seems to spell a further decline on the pair, and perhaps a move to a historical one euro per pound.

Published on  Mon, Oct 12 2009, 11:12 GMT