The week has started on a positive note for markets across the globe, after traders came back from Easter celebrations in a joyous mood. Yesterday the European markets were still closed and therefore liquidity was thin and moves were more extreme than normal, with GBP/USD making an impressive rally towards 1.49. The first earnings results were positive for Goldman Sachs and also Citigroup, however traders are not convinced yet as to what the next day€™s releases will mean to the current fragile economic environment.
The EUR/USD has been trading heavily since yesterday on the upside; however the rally came to a halt at important resistance level of 1.3370.The failure of the pair to break higher above 1.34, may indicate that more downside is to come as long as I.3230 gives way into the coming hours, as it is good support level. Traders are still uncertain as to what the direction of the pair is for now, as speculations for further rate cuts from ECB are mounting following recent comments from ECB members that the bank has room to cut even below 1%
The economic calendar has a few very important releases today, with retail sales out of US being the one that traders will monitor for signs of recovery in the consumer sector. Also we have PPI out of US and a speech by Bernanke later on today, regarding the current economic situation. The markets do not have a clear direction for now, as the threat of risk aversion is always imminent even if the risk appetite is clearly making a comeback in the last few sessions. The economic data continue to deteriorate, however in the recent days, we see that investors do not buy the dollar as a result of risk aversion, but sell it as fundamentals kick in and traders realize that deteriorating data means deteriorating currency.
Only today we had more comments and indications that Mr. Trichet and his pals may continue with the easing into he coming months, and that puts more pressure into euro, as the reluctance from ECB to act faster on cutting rates, means that they are stalling and that makes investors even more wary and uncertain about the future of Euro zone€™s economy. The fact that the data continue to disappoint and inflation has come out at its lowest levels makes us wonder if ECB will go down the zero rate path like the other Central Banks. Until there is a clear stance for what is the bank planning to do, the euro won€™t be able to keep its gains for now and potentially could find sellers on rallies.
In other markets, gold rose once again, after it found good support at $870 and another upside move took it above $890.The gold outlook seems to be entirely connected with how investors feel about the economic future and as long as risk aversion return to the markets, gold will get bid as an alternative investment. Next important level for gold is $900 and a clear break may open the way for further gains once again.
Let€™s see how the day progresses and if the markets will turn negative after another round of bad economic data. The pound seems strong against the dollar and this time we need to see a clear break of 1.50 for continuation of the current bullish sentiment. The later level has been tried many times to break in the past, so let€™s wait and see if traders are ready to take the pound to the next level€¦