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FX Technical Strategy

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Mixed signals

Thu, Dec 4 2008, 07:44 GMT
by Lloyds TSB Financial Markets Economic Research Team

Lloyds TSB Financial Markets


Market overview

At the end of last week there was a sense of cautious optimism as euro dollar had failed to breach key support at 1.2400 and was travelling in the opposite direction. Equities appeared to be finding a floor with the Dow putting some distance between the 7450 intra day low and S&Ps nudging 900 once again. Even commodities had given some positive signals with gold extending gains above $800 and cocoa and cotton pushing higher. Typically of the current market environment however, this scenario has not only reversed, but has done so at speed.
With the potential for sentiment to change once again by 180 degrees, the market will be understandably cautious in an already risk averse environment. With long end yields softening and equity volatility rising, the outlook favours an appreciating dollar and yen to the detriment of the commodity currencies. Considering the sentiment, the 'high yielders' have performed remarkably well, but this could prove to be a temporary scenario. The next few weeks should see some clarification, but for the moment a flexible, short term approach seems sensible.


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