This week sees payroll data done and dusted and the euro getting hit since its release, mainly due to risk aversion and new speculation that the ECB will ease even further - all the way down to 1%. The interest rate differentials are narrowing immensely, a good reason for euro bears to make their stand and continue selling!
A lot can be said about what went on last Friday as the number, although negative with unemployment reaching new highs at 7.2%, the dollar still came, saw and conquered with EUR/USD breaking on the downside fast and furiously! Market participants were once again in 'buy the rumor sells the fact' mode, obvious by the fact the dollar was being sold all across the board before the announcement! The very fact the US economic conditions continue to deteriorate, with more than 1.000.000 jobs lost within the period of two months, makes investors wary and unsure of what the future holds and risk aversion their only friend.
The EUR/USD has been traded heavily since early in the European open with the pair so far willing to break 1, 33. A clear break of this level will maybe meet with further selling towards 1.3230 ahead of 1.32. As long as the pair trades below 1.35 there may be scope for further losses in the coming days until Mr. Trichet says those magic words!
The economic calendar today is almost empty; however this week is packed with important events, starting tomorrow with the FED's Mr. Bernanke delivering a speech regarding the crisis and latest economic developments, which traders may monitor for any signals as to what the Bank will do next. Also this week we have the US Trade Balance, retail sales, PPI and CPI which more than likely will give the traders some idea of where things are heading regarding the dollar direction. The most important event though this week is the ECB's rate decision and the question is not if the bank will cut, but what Trichet will say to the press afterwards! So far traders are pricing in a rather dovish Trichet, however only on the day we will know more about the insights of the decision and what the future may bring. The recent comments by ECB officials have given the market the impression the bank is thinking seriously about lowering rates to 1% or even further if things don’t improve.
The oil also dived today trading below $40 per barrel, amid renewed worries of the economic slump; even though OPEC has made it clear they will cut supply in their next meeting! The worries regarding the supply and demand issue are just too high to deal with at the moment and therefore oil is getting the worst of all this! Many analysts predict the fall will continue for some time and if the oil fails to break higher within the next days, the drop may reach new lows closer to $30 per barrel.
Let’s see how the markets will continue today and what this week will bring us in terms of some kind of direction. The dollar seems strong against the pound and the euro and may continue to do so, as economic uncertainty and fear return to the markets…