What a day for the dollar yesterday, what with better economic data out of the US, and a slightly more positive Bernanke on his speech regarding the financial crisis. The currency markets together with equities and futures had a choppy trading day all round and the fear and uncertainty of investors are still a reality.

EUR/USD is trading lower this morning after a short rally seen in late Asian session which took the pair all the way up to 1.3330.The latter level which worked as strong support before now became a good resistance and as long as the pair trades below it there is maybe another downside move towards 1.3130 ahead of 1.3085.A clear break of 1.3085 opens way towards 1.3030.However, it will be crucial for the currency to see how it behaves at 1.3085.Traders may not want to pre commit to further break outs ahead of tomorrow’s rate decision.

The retail sales out of US came below expectations and that was welcomed with renewed dollar strength mainly due to risk aversion as investors now dreading the worse after dismal economic data. The fact that yesterday better than expected Trade balance didn’t manage to calm markets down says that for now the risk aversion continues to rule and the bear market is reality at least for now.

Another factor for euro’s weakness is negative earnings report out of Deutsche bank this morning which saw the banks losses coming out to -$6.3billion in the fourth quarter and the European stocks down as a result! Tomorrow we have the big day for Europe and its currency, as we are waiting another cut from ECB of 50 bps. The negative data together with dovish comments from various ECB members are only fueling the speculations that the bank may continue to cut its rates in the coming meetings. However, until we hear this from Mr. Trichet tomorrow we can only speculate and ECB as always does not pre commit to future monetary actions? The euro has lost more than 900 points since the beginning of the month and is due for a nice retracement, however until the economic events unfold in the coming days the rallies we see always are welcomed with sell offs!

In other markets, news from OPEC that more cuts will follow soon until the oil reaches desirable levels, gave traders some kind of leverage to buy oil yesterday, pushing it towards $39.50, however renewed worries this morning about the economic future retraced all gains. At the moment oil is trading below $38 and if looks vulnerable for further losses. US stocks continue to slide after bad retails sales numbers and also negative earnings from several US banks this morning.

Yesterdays speech by Bernanke didn’t give traders any kind of positive sentiment and although FED’s president tried to calm the markets by listing solutions to the current crisis, the main conclusion is that the level of damage at this point is too much to be repaired easily and economic conditions may continue to deteriorate until we see some kind of stabilization!

Let’s see how the markets will trade towards London closing and if futures, equities and commodities will continue the recent slide towards new lows…