The inverse correlation between the dollar and the stock market for the last several months is still strong. An explanation is the fact that equity markets are an economic leading indicator, looking ahead for about six months. With the recent massive monetary and fiscal expansion, there is danger of rising inflation once the economy recovers: Thus, any positive sign of the Dow Jones ignites weakness in the USD, even short term and intraday, as once again has been observed over the last two weeks. The relation works the other way, too, because in that case there is also danger of deflation in these difficult times. We would concentrate on the relation this week rather than focusing on the ECB’s rate decision (a 50-basis-point interest rate cut is expected) and the G20 summit (again words, but what about the deeds?). Right now, the recent rise in the equity markets seems to be going into a down correction, and with it the USD the other way.
For today’s trading in the major pairs, we would use the current bid tone in the dollar to buy on weakness as described in detail below. Note the 16:30 CET speech of ECB president Trichet, possibly a market-moving indicator.
Intraday Market Outlook for Day Traders
EUR / USD
The pair lost further territory in European morning trading and is currently at 1.3190. We expect some recovery to set in soon, but not exceeding the level around 1.3250, where we see renewed weakness to set in today.
GBP / USD
Cable continued its downtrend in early European trading and is currently at 1.4160, in very oversold condition, and on longer-term support. We therefore don’t see much downside risk in today’s trading, rather a sideways market in development. Upmoves will find resistance at 1.4230.
USD / CHF
The dollar gained only slightly more territory against the Swiss franc, more or less consolidating its higher levels, and is currently trading at 1.1480. We expect another upmove to set in today, most probably to 1.1580.
USD / JPY
In a countermove compared with other pairs, the dollar remained under pressure in all of Asian trading and managed only a slight recovery in European morning trading. The pair is currently trading at 96.50, hovering just above a longer-term support. We see the downside potential as more or less exhausted in today’s trading, allowing some recovery to the 97.20 level.
For today’s trading in the major pairs, we would use the current bid tone in the dollar to buy on weakness as described in detail below. Note the 16:30 CET speech of ECB president Trichet, possibly a market-moving indicator.
Intraday Market Outlook for Day Traders
EUR / USD
The pair lost further territory in European morning trading and is currently at 1.3190. We expect some recovery to set in soon, but not exceeding the level around 1.3250, where we see renewed weakness to set in today.
GBP / USD
Cable continued its downtrend in early European trading and is currently at 1.4160, in very oversold condition, and on longer-term support. We therefore don’t see much downside risk in today’s trading, rather a sideways market in development. Upmoves will find resistance at 1.4230.
USD / CHF
The dollar gained only slightly more territory against the Swiss franc, more or less consolidating its higher levels, and is currently trading at 1.1480. We expect another upmove to set in today, most probably to 1.1580.
USD / JPY
In a countermove compared with other pairs, the dollar remained under pressure in all of Asian trading and managed only a slight recovery in European morning trading. The pair is currently trading at 96.50, hovering just above a longer-term support. We see the downside potential as more or less exhausted in today’s trading, allowing some recovery to the 97.20 level.
