Yesterday was a positive day for the markets, with DOW JONES and NIKEI closing on positive territory, amid better than expected economic data out of the US and also corporate earnings results coming out better than forecast.
The euro also rose yesterday as the return of risk appetite was obvious and therefore it gave the EUR/USD a push towards 1.3050. However come today, the move was put on temporary halt, as the euro dived against the yen and dollar as renewed worry that the stimulus package wouldn’t be approved by the Senate! Also getting closer is tomorrow's rate decision by the ECB making investors wary of the euro’s direction!
The EUR/USD has traded heavily since the beginning of the week and it seems to be trapped between important support/resistance levels of 1.27 to 1.31. The pair rallied yesterday, but traders were not prepared to commit themselves further before tomorrow’s rate decision by ECB and therefore the move ended abruptly at 1.3060. The euro is still falling against the dollar with the next level to watch being 1.2830 - a good support level which if it gives way then 1.2760 may come back to play.
Today the economic calendar featured news from the UK, where Services PMI came out slightly better than expected. The pound seems to be strong today in contrast with the euro and the EUR/GBP is reaching new lows of 0.8940 at the time of writing. We also had the ADP report out of US which always gives us an idea of what the number of Friday's payroll data may be. The number was -522.000 and market shrugged off the data as it braced for another negative month around that mark. The fact that in a space of three months we have seen jobs quickly evaporating which combined with high unemployment, gives investors jitters and their bullish mood is tough to sustain as risk aversion always prevails! We also have ISM non-manufacturing figures from the US, which are again expected to be negative; however we might be pleasantly surprised by a better number.
Let’s see how the market will react to today's economic data and also how the traders will position themselves for the big day tomorrow! The pound is looking strong so far, but it makes one wonder how investors will react if the BOE cut more than the 50 bps which is widely expected. As I mentioned before, tomorrow will be crucial for the pound's direction as it will show how King and his pals feel about the recent slide of their currency. Many analysts predict that the pound may reach parity against the dollar in the coming months, however let’s be realistic before we start speculating extreme scenarios. The economic conditions continue to look dismal in UK; however as with all situations we might start to see signs of stabilization over the coming months. The latest data shows the recession is deepening further however there is a certain degree of optimism and it will be interesting to see where it all bottoms out!
The dollar and yen seem strong today and the ever growing concern in the market over the stimulus package and the state of the US economy may make investors turn to those assets for safe haven in the current turmoil! The euro is waiting for Trichet’s wise words in his press conference regarding the rates and the continuation of recession throughout 2009, where after traders will decide which way to go…
Historical Economic Charts