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Daily Trading Forecast

Irrational Exuberance Works Both Ways

Fri, Mar 6 2009, 11:04 GMT
by Swiss e Trade Strategy Team

Swiss e Trade AG  |  View company's profile

When Alan Greenspan coined his famous "Irrational Exuberance" description of the bubbling stock market, he might have thought of the opposite as well, "Irrational Pessimism," which we are currently observing in the world stock markets. Greed and fear are the only forces driving the stock market, and now it is fear, of more bad news from the banking system, which is unfortunately still dominated by paralyzed banking managers sitting on their hands. True, the distorted financing of international trade has already led to really bad economic consequences worldwide. But banking disruptions never take long to iron out, and the underlying forces in the economy are still here to flex their muscles again. As historically proven, it is America that is first in that and we do not expect a change in that tradition. Until then, and there are first signs in U.S. data that we might have passed the trough of recession already, the USD will show further strength - because of that lingering pessimism, which drives longer-term yields down and therefore makes U.S. bond markets attractive.

The BoE’s and ECB’s interest rate cuts by 50 bp yesterday as expected did not have much impact on the pound and euro, with both still trading in their well-defined ranges near long-term support against the dollar. For today’s trading, we expect more downward correction in the USD to come, as described in detail below. Note the 14:30 CET U.S. nonfarm payroll and unemployment data for February, usually market movers. Slightly better or unchanged conditions are expected.

by George Clement

Intraday Market Outlook for Day Traders

EUR / USD
The pair, on a recovery move to the current 1.2670, is bumping into a resistance zone now around the 1.2700 level. We see that level being broken in today’s trading, leading to prices around 1.2750, before another weak phase could set in.

GBP / USD
Cable kept up its strength in European morning trading, up to 1.4287, and right now on a retreat to the 1.4220 level. We expect the 1.4160 support to hold today, from where further recovery moves are likely, towards the 1.4250 resistance valid for the day.

USD / CHF
Having lost its strength against the Swiss franc in Asian trading, the dollar continued its fall in European morning trading and is currently priced at 1.1560, a decline from 1.1800. Right now there is a consolidation in the making which we do not expect to last for long today. A test of the support level at 1.1510 is in the cards.

USD / JPY
The dollar fell further against the yen during Asian trading and continues to lose territory in early European hours, currently priced at 96.80. Prices around this level represent a solid support zone for today, we do not see much downside risk from here. The upside potential in today’s range is limited to 97.80.

Published on  Fri, Mar 6 2009, 11:06 GMT