Today it was another typical sell off day for the euro and pound, after yesterdays short term rally found a temporary stop near 1.29 and 1.46. The currencies are trading on the downside today and dollar seems to find bidders at any selling opportunities. Stocks yesterday gained in New York and Asia, after investors heard Bernanke’s testimony and found some hope that the recession may come to an end sooner than originally thought. However, come today and futures already trading in negative early New York opening, as investors are weighing Obama’s new stimulus plan and its effect on the banking system.

The EUR/USD failed once again to break on the upside and its continuing failure tells us that further downside may be in store. The pair found sellers at 1.29 this morning and its now trading lower near 1.27. A clear break of the latter level may open way towards 1.26. Traders don’t want to commit on the upside just yet, even with negative US data being released almost daily and the bearish market sentiment gives investors more reasons to exit long positions in the European currency.

Today the economic calendar had a few important releases, with UK GDP coming out worse than expected and also revised down which made investors instantly aware of the pound and its fate and therefore given more reasons to sell the British currency! Also we had existing home sales, again coming out much lower than expected, driving the stocks lower once again as the US economic future seems dismal at best! The sentiment of the markets is still negative and yesterday’s markets rally came to a halt as investors are now contemplating what the FED will have to do to speed up the US economic recovery. Some analysts predict that the deterioration may continue even after 2010, as Bernanke himself said yesterday that if banking sector doesn’t improve, things won’t be able to better in the next years.

The yen seems to continue on negative tone, making USD/JPY lucrative for investors and as we said in the previous articles, the pair reached 97, its first target and now next target seems to be 100 in the coming days. The fact that dollar is strong and yen is extremely weak, makes the pair the ideal trading pair for now and even risk aversion don’t seem to influence the buying appetite. Economic conditions in Japan are so negative and therefore make traders not trusting the yen as a safe haven currency any more.

Let’s see how markets will react after the second testimony by Bernanke in front of the Senate and if the dollar continues to gain at the back of futures losses. There is a strong correlation between action in stocks and the dollar, and the weakness we witnessed yesterday in dollar came more from futures appreciating. Today that has changed so far and if futures continue to fall, further dollar strength is awaited…

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