When a triple-A-rated U.S. company has to pay over 7% to long-term lenders, which finance themselves at a half percent short term, then some things are distorted, and call for remedy. First, there is the all too well-known credit crunch with banks still reluctant to lend, despite government-induced near zero interest rates. Second, the economy is on its knees and about to faint to a degree that even nationalization celebrates a comeback. And finally there is the expectation of a huge longer-term inflation potential, considering a ballooning money supply, and a World War II-like fiscal deficit of over 12% of GDP this year. Too-steep yield curves, inverted or not, never remain intact for long. Sooner or later we will see either a recovery of the economy, which pushes up the short-term rates, or reduction in inflation expectations, which dampens the long-term element, or a combination of both. However, despite this expectation of a future flattening, at least for the short to medium term, the current high yields are lending and will lend strength to the USD, most probably through the entire year of 2009.
Short term, and to prove the above bullish outlook for the Greenback, the long-term resistance lines now about to be tested for the umpteenth time since last November have to be broken on the upside. The 1.2500 level in the EUR / USD is a good example of that. We do not expect the decisive move to come soon, at least not in today’s trading. A bid tone for the USD will remain intact today, though, as outlined in detail below. Note the 14:30 CET-due release of the second U.S. GDP 4th Q estimate, now expected at over -5%. The first estimate called for -3.8%.
by George Clement
Intraday Market Outlook for Day Traders
EUR / USD
The current downmove in early European trading is losing some steam right now, with the pair priced at 1.2660. That is slightly above the 1.2650 intermediate support line, which we expect will be broken eventually today, after a short recovery not exceeding 1.2690.
GBP / USD
Another bout of weakness hit cable this European morning, currently trading at 1.4190. Testing a longer-term support zone right now, we expect some recovery moves to set in today, but not above 1.4240. Renewed weakness then probably will return, leading to a downward break of the 1.4150 level.
USD / CHF
The dollar started with strength in early European trading, penetrating the 1.1730 level against the Swiss franc. Right now priced at 1.1735, we expect some downward correction moves, but not below levels of around 1.1680, which we see as another buying opportunity with a target of 1.1790 today.
USD / JPY
Correcting further its clearly overbought situation in Asian trading, the dollar is now back to prices around 97.30 against the yen in early European trading. We see another attempt at strength today, not exceeding the 98.50 level.
Short term, and to prove the above bullish outlook for the Greenback, the long-term resistance lines now about to be tested for the umpteenth time since last November have to be broken on the upside. The 1.2500 level in the EUR / USD is a good example of that. We do not expect the decisive move to come soon, at least not in today’s trading. A bid tone for the USD will remain intact today, though, as outlined in detail below. Note the 14:30 CET-due release of the second U.S. GDP 4th Q estimate, now expected at over -5%. The first estimate called for -3.8%.
by George Clement
Intraday Market Outlook for Day Traders
EUR / USD
The current downmove in early European trading is losing some steam right now, with the pair priced at 1.2660. That is slightly above the 1.2650 intermediate support line, which we expect will be broken eventually today, after a short recovery not exceeding 1.2690.
GBP / USD
Another bout of weakness hit cable this European morning, currently trading at 1.4190. Testing a longer-term support zone right now, we expect some recovery moves to set in today, but not above 1.4240. Renewed weakness then probably will return, leading to a downward break of the 1.4150 level.
USD / CHF
The dollar started with strength in early European trading, penetrating the 1.1730 level against the Swiss franc. Right now priced at 1.1735, we expect some downward correction moves, but not below levels of around 1.1680, which we see as another buying opportunity with a target of 1.1790 today.
USD / JPY
Correcting further its clearly overbought situation in Asian trading, the dollar is now back to prices around 97.30 against the yen in early European trading. We see another attempt at strength today, not exceeding the 98.50 level.
