Another week has started, with markets already down since the Asian session began and continuing on into the European session, amid fears of a US plan to nationalize banks and how it will affect an already suffering economy. New York closed negatively yesterday, with traders clearly unsure of what the economic future will bring.
The EUR/USD did not manage to break 1.30 once again and its weakness to do so indicates there may be more downside to follow. The pair broke 1.27 late yesterday and printed a new low for the day at 1.2650. For now, levels to watch are 1.2630 ahead of 1.26 on the downside and 1.2780 to 1.2830 on the upside. Any breakouts of those levels may give us direction for now. The euro seems to trade on the negative once again and dollar is getting bid as a result of risk aversion.
The economic calendar has a few important events today, with the German IFO coming out mixed and the euro appreciating as an aftermath. However, the move was not strong enough to take out important resistance of EUR/USD at 1.2830. Traders will want to hear Bernanke’s speech in front of the Senate regarding the economic crisis and monetary policy. This speech is eagerly awaited by market participants and is likely to spark a new wave of risk aversion if it fails to convey a more hopeful message for the future! Later we have consumer confidence out of the US, which is expected again to be negative thanks to high unemployment and jobless claims indicating consumers are not spending.
The latest data out of Japan suggests the country’s economy has deteriorated quickly over the last few months, a fact which made many investors stop buying the yen as a lucrative and safe haven currency. Therefore we see USD/JPY appreciating as a result and now the next level to watch for the pair seems to be 97. If the current action continues we may see further gains in all carry pairs, as risk aversion does not seem to hit them any longer!
This week may give us some idea of what’s next for the markets, as we have some important economic data out of both the US and Europe, but also we have Bernanke’s testimony today and tomorrow which traders are waiting anxiously for before they commit either way. The current climate in the markets is negative though, and it is likely to stay for now, as daily loses are printed in futures and equities amid fear for the global economic future. Traders are not sure anymore which currency to hold their money in, as the pound and euro are facing economic turbulence and the prospect of more rate cuts is always in the back of our mind! This Thursday we have testimony from the BOE’s governor, where he will lay out the current situation in England and give us a hint as to whether the bank will slash rates down to zero.
For now, traders are waiting for tonight’s testimony by Bernanke and his words will be monitored closely. If the markets don’t feel the government is doing enough to tackle the current situation, it is more than likely they will continue to trade on the downside, where the dollar may strengthen as a result.
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