After a relatively quiet Monday with no major economic events on the agenda, traders found the opportunity to lock in profits and re position for the coming days. Markets were negative yesterday, with DOW JONES closing down more than 100 points, and Asian session also trading on the negative. Investors fear that the recovery may be prolonged and they don€™t share other US official€™s optimism that the worse is over just yet€¦
The EUR/USD is trading heavily since early this morning and although we saw a brief consolidation yesterday towards 1.35, the move was not strong enough to alter the current bullish sentiment on the euro. Next level to watch will be 1.3670 and 1.3730 and a clear break of the latter levels may open the way for further gains.
The dollar continues to weaken all across the board and that is a signal that traders feel more confident in buying other currencies at present, and the need for dollar as a safe haven asset is fading slowly. Better than expected news this morning out of China, indicated that the country is battling the recession and is one step closer to recovery, which gave stocks so far a push higher. European futures are up and so far it looks good for US stocks after New York open. It is so obvious these days that market participants trade with nothing more than their feelings about a better economic future or further deteriorating outlook.
The economic calendar today had a few economic releases out of UK and so far all data showed improved economic conditions for the country and a stronger pound as a result. Also later on we have trade balance out of US and the number is expected worse than previous month, which may very well give more reasons for traders to sell the dollar further.
After 8 months of deteriorating market conditions, dismal economic data from US and EU, falling stocks, uncertain economic future due to a great recession, we see finally some signs that the market bottom is maybe near. In previous days, we got better results from banks, President Obama said the recovery has started and Trichet stated that the Euro area showed signs of improvement and even indicated that rates will remain above 1%.
What we experience right now in EUR/USD ,is a mixture of suppressed feelings towards the EU and its economic conditions, together with risk appetite returning thanks to better economic news.EUR/USD broke important 1.35, and now it will be crucial to see how it extends its gains. So far it is looking good for further upside; however the real test will be 1.40 once again which may show strong resilience. Let€™s not forget what happened last time when euro was gaining fastly, ECB intervened indirectly and caused it to slump, by cutting its discount rate unexpectedly. Is ECB ready for a strong euro at this point? Possibly not€¦
One thing is certain for now, recession is still a reality, however recovery is not, therefore risk aversion can come back any time and therefore we can see dollar gaining. For now, let€™s watch how stocks perform after New York opens and if euro€™s new found strength can take the pair to new levels not seen for some time...