The week has come to an end and the markets are trading heavily with no clear direction amid fears of the latest economic developments. The trading action we experience in currencies these days is choppy and full of whipsaws, however so far the trend remains on the downside as both the euro and pound are suffering losses against the ever-growing dollar. The yen is the clear winner of the week also, after we saw big moves in all yen related pairs, taking EUR/JPY, USD/JPY and GBP/JPY to new multi-week lows!
The EUR/USD has managed to hold 1.30 and keep trading below that level, which makes us think that further downside may be in store! The next level to watch is 1.2765 which so far works as a good support; however a clear break of the latter level can open way to 1.2730 ahead of 1.2680. Today being Friday may allow some profit taking later towards New York's closing and it will be very interesting to see the weekly close of the euro.
The reason for this trading uncertainty lies once again in the negative sentiments that keeps on going in the markets and almost daily news about the bad earnings of banks and other big corporations, most recently being Microsoft who plan 5000 redundancies during the coming months. Investors are still hoping that the new administration will amend things soon; however the damage is quite deep and even Mr. Geithner s new Treasury proposals seemed a little farfetched!
The economic calendar is empty of important releases out of US, with retail sales of from the UK coming out slightly higher than expected, but not really giving investors any kind of joy, as the GDP printed a big contraction, making analysts talk about the worst recession since the 80s. All in all the data was interpreted negatively by markets, sending the pound to new lows at 1.35 which was the short term target! Today we also had the CPI from Canada, which came out lower than previous figures, giving the Canadian dollar a temporary boost!
For the last day of the week, we expect to have big volumes and it will be very interesting to watch the New York closing ahead of the weekend! Traders may do some long awaited profit taking and therefore we may see some weakness in the dollar amid the last days of nonstop gains! The yen is also interesting these days, as it made new highs against many currencies and one wonders if it has reached its short term target for now. The answer is not that simple, as risk aversion has taken over the market and it is very difficult to set limits for all pairs, especially the yen, which seems to enjoy the attention whenever bad news hits the wires.
The markets are in a wait and see mode with the new Obama administration and the FED’s new stimulus plans waiting to be approved by the Congress. The dollar is stronger once again and with next week being the last week of the month we may see some weakness unfolding. Watch out for the gold as well, which soared these days, therefore indicating the euro may follow the move in the coming weeks.