Another week is starting with the pound selling in the early European session and taking the GBP/USD down over 300 pips. The reason for another sell off wave in the pound is bad economic data out of UK and speculation that the BOE will cut further this week, all the way to 1% and perhaps even lower. King's words last month that the Bank may cut all the way down to zero rates are still fresh in everyone’s minds and with the economic conditions continuing to deteriorate; the pound is getting hit from all sides!
The EUR/USD is also trading heavily on the downside and a new low took place early today at 1.27. So far the later level worked as support; however a clear break may lead to further losses all the way down to 1.25. The ECB rate decision is weighing heavily on the euro these days and also contracting economic data out of Euro zone doesn’t help investor’s confidence. If the 1.27 holds for now, we might see a relief rally developing towards 1.2830, however the euro bears may be ready to hit those levels once again.
Today's economic calendar has the UK's PMI which was low and together with the downgrade of Barclays’ earning report announcement, made the pound very weak indeed. Today's US data is personal spending, personal income and also ISM Manufacturing which traders are waiting for in order to see how much the sector is suffering after the latest economic woes. The dollar seems to be the leader these days in everyone’s trades, which may continue for the week, ahead of Friday’s payroll data.
The week has many important events, with the ECB and BOE rate decision looming and also ISM non-manufacturing out of the US and non-farm payroll data on Friday. Traders are bracing for yet another negative number and if it reaches -500.000 again, it will be a large number of jobs lost in the space of 3 months. With unemployment rising in the US, it makes it even harder for Obama to tackle the economic crisis with his bail out plans and investors now are wary of this, hence the selloff we've experienced these days.
The oil fell once again in early trading today which mainly has to do with the fears of market participants about the economic future, therefore any rallies towards $50 a barrel could very well be met with sell offs as the fear and uncertainty of the markets are just too high at the moment for traders to be bullish for long period of times.
With Monday being the first trading day of the month, we may experience some high volatility in the currency pairs and therefore some breakouts maybe unavoidable. Watch out for the EUR/USD 1.27 level and how it behaves and also the GBP/USD at 1.40. If the latter level gives way then 1.35 may be in the cards for the coming days. At the moment it is vital to see how BOE will react on Thursday and if they are willing to see their royal currency deteriorating further down. With banks and building societies in UK begging Mr. Brown and King not to cut further, but with inflation well elevated and negative economic data, their job will be harder than ever…
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