Another week is starting, with markets trading on positive territory and Asia ending the session profitably and Europe still up for the day! Market participants are in a euphoric mood due to Obama new plan to get rid of toxic assets which will be presented later on this week! The question now arises of how long this positive mood will last, as markets have proven that good news doesn€™t last long during recession!
The EUR/USD is trading heavily since the market opened, with the pair topping out once again at 1.3730 and since then consolidating in the narrow range of 1.3630-1.3730. Now it will be interesting to see how the pair behaves at those levels and if euro€™s rise is strong enough to take out 1.3760. On the downside, if the pair breaks 1.3560 then more euro weakness may be in store till 1.35 ahead of 1.3480. Today it€™s a typical Monday after a very volatile and choppy week, with no important news on the calendar and plenty of big events to follow over the coming days. Therefore, traders may want to take it easy and not commit themselves either way! As long as 1.3560 holds for now, further upside may be coming towards 1.38.
The GBP/USD is another pair trading higher since the market opened and for now 1.4680 is the next level to watch! A clear break of this level may open the way towards 1.48 or more. The pair has to remain above 1.43 in the coming days if any more upside is to be seen. Today there is no news from the UK and therefore traders may want to get ready for events later in the week. The dollar€™s weakness is the main reason for the pound€™s strength and it will be interesting to see how long it lasts during the UK's economic trouble.
Today's calendar is empty, however later in the week we have plenty of economic events to keep us going! Let€™s not forget that Obama€™s administration is announcing their plan to restore the mortgage crisis by getting rid of all the toxic assets. In theory the plan sounds easy and plausible; however investors are not totally convinced it will work as effectively as Geithner and co. hope. Also, Bernanke will deliver his testimony regarding the restoration of the deteriorating economy and the markets will monitor their words closely for further direction. So far the sentiment is positive, however we all know the 'buy the rumor sell the fact' situation and if traders don€™t like what they hear, they will continue to do what they know best: sell, sell, sell€¦
The UK, US and also Euro zone will see news later in the week too and it will be interesting to hear the BOE's Mr. King testify in front of the House of Lords and to see what the bank has in mind for the future of interest rates and deflation! The rates are at their lowest levels and there is further speculation that they could reach zero in the coming weeks. Some extreme scenarios even predict rates below zero for the coming months, however I don€™t personally think that BOE will follow that route at times where the economy is bad enough and last thing they want to do is bring deflation into the equation.
During Monday's lull, it will be interesting to see how the US will open and whether the current positive sentiment will last for the day until important events start to unfold from tomorrow. One thing to watch will be the data out of Euro zone, and what they could potentially do to the recent strong euro. If the data continues to disappoint traders may not want to commit themselves to longer term positions as the ECB monetary meeting approaches and the risk of a further dovish tone by Trichet is bigger than ever!
So, let€™s see what this week means for the dollar and its recent slide and if the newly found risk appetite is ready to be taken to the next level.