Today is the last trading day of the month and traders are squaring back their profits and positioning themselves for next week. The trading action seen today has been choppy and in light of the US GDP - rather dollar friendly! The euro fell further after this morning's European opening mainly due to interest rate speculations and risk aversion! After the latest FMOC meeting it is clear that Bernanke and his pals are thinking of maintaining low rates but not going below zero, as the deflation dangers are too high to dismiss. As Trichet though commented yesterday, ECB may need rates to fall further. This can be easily seen in the EUR/GBP as the rate plummeted below 0.90.
EUR/USD continues to trade heavily on the downside and so far 1.28 has kept up short term support. However, the fact that pair could not even retrace above 1.2930 shows that more weakness may be in store. A clear break of 1.28 may open the way towards 1.2760 ahead of 1.2730. As today is the last trading day for January we may see more dollar strength and therefore 1.28 not being able to hold for too long.
Today important economic data came out of the US in the form of the GDP, Chicago PMI and consumer confidence. All data contained more bad news with the GDP falling the most since the 80s and the economy continues to deteriorate at a fast pace. The fact that forecasts were predicting an even worse number gave the investors some kind of confidence initially, however it was short lived after the PMI and consumer confidence showed really bad figures. Many speculate that next week’s payroll data will be once again in the -500.000 mark and that it makes market participants wary of any big rallies. The combination of many layoffs from banks and other big corporations together with the daily negative economic numbers in the housing sector and industrial sector, give the impression that the worse is yet to come and no matter how the new Obama administration tries to calm the markets with bail out plans and other stimulus packages, the market sentiment is negative and likely to remain that way.
Futures and equities are down so far after New York's opening, following European and Asian markets and with next week’s important economic data expected to be dismal once again, the downside seems to be the trader's friend at this point. The dollar is the winner for the week and the yen has managed to retrace its earlier losses against other currencies, as investors are pulling out of risky positions and turning their attention to safer assets. In such an uncertain environment, the Euro zone falling and Japan and US the same, the safest bet seems to still be the greenback and the yen, as in times of crisis these are the two currencies that always stay on top! The euro is not a safe bet by far, as many investors are saying, as it holds too many dangers, thanks to several rumours concerning European countries who want to withdraw from the single currency amid the crisis.
Let’s see how markets close today and if the EUR/USD closes below 1.28, indicating that new lows are in store for the pair in the coming days.