The dollar continues to trade strong against its other major counterparts and for now it seems investors are favoring the US currency due to fear and uncertainty. The stocks fell yesterday before New York close and also during the Asian session, after another wave of bad economic data hit US, which sawed manufacturing sector plunging by much and also renewed worries that Obama’s new bailout plan won’t be able to do a lot to the fast deteriorating economy!

The EUR/USD is trading on the downside once again, making new lows closer to 1.25, where it found buyers to defend the important psychological support. For now, next level to watch is 1.25 and if that gives way then 1.2460 seems the next target. On the upside, 1.2630 is a good resistance level and if that keeps for now, further downside is possible. The fact that 1.2630 didn’t break show how bearish the euro sentiment is as it cannot sustains higher corrections and therefore the downside seems unavoidable.

The economic calendar today had a few important economic reports, with BOE MPC minutes showing that the economic conditions continue to deteriorate and more easing may be in stall for the coming months. All recent data suggest that the country is deep in recession and the bank is thinking of ways to avoid second round effects by any means possible. It was made known today that bank officials are asking the government to let them print more money in order to boost the economy and avoid further economic slump. The pound was trading lower after the news and continues to do so, with GBP/USD making new lows for the session at 1.4090 and looks poised for more as long as it holds 1.4280 on any retracement s up.

Also today we had housing data out of the US, with Housing Starts dropping the most since the credit crisis begun and stocks responding negatively once again as risk aversion always seem to follow the bad economic numbers! The fact that markets have placed their hopes into this new stimulus plan that Obama will detail sometime today, is giving even more reasons to investors to trade without clear direction and exit their risky positions due to uncertainty and disbelief that the crisis will be eventually tackled.

The gold continues to gain from all this and for now it looks that next target is 1000 or even higher. Although gold usually correlates with euro, we don’t see that happening now and euro continue to fall against the dollar as market sentiment is full negative regarding the European outlook. The dollar is the flavor of the crisis and may continue to do so, however beware of any weakness coming if risk appetite returns in the markets in the coming weeks. If that occurs, then dollar may start to lose its attraction and therefore sell off fast, however for now that scenario is only a far fetched dream for dollar bears…

Historical Economic Charts

Housing Starts