After a record DOW JONES and global market rally on Monday, investors decided not to continue with the recent gains, and the euphoric mood has come to a halt for now at least! Today€™s hearing with Geithner and Bernanke in front of the Senate regarding the recent AIG bonus scandal has put further pressure to investors as to what will be decided. Obama and Geithner both called for stricter regulation to big banks and corporations, however we heard this story before and it will be interesting to see how it plays out in the end!
The EUR/USD was trading heavily since early European and 1.3730 did not manage to break once again at least for now. The euro was under pressure and still is, amid Trichet€™s implications that further rate cuts may be in store in the next monetary meeting. The market participants are speculating now that rates may fall below 1% and eventually go as low as zero following UK and US. As long as the pair keeps trading below 1.36 there is further scope for weakness towards 1.34. The EUR/USD was influenced greatly by EUR/GBP as the pound was stronger across the board today, after UK CPI came out stronger than expected. Levels to watch for the pair now are: 1.3460 for the downside and 1.3630 for the upside. A clear break may give us the direction for now!
The economic calendar was full of data out of UK and Euro zone, with UK CPI coming out higher than forecast, giving the sterling a reason to rise and shine against its other major counterparts. The data out of Euro zone were mixed, however the current account fell sharply giving another reason for euro bulls to back off for now. We also had BOE€™s King speech regarding the latest economic developments and his words were more soothing for the pound today as he basically said that he sees sharp drop of CPI coming to an end in the next months and also positive sentiment regarding the future of the economy. The latest decision by UK government to buy securities and help boost the economy, has been wise according to King and the bank is anticipating the results very soon! The pound was trading higher across the board all day and the question that arises now is, if that rally is strong enough to take out 1.50 in the coming days. The daily chart so far indicates that as long as the pair holds 1.45, a breakout may be in store soon towards 1.50. The coming days will be crucial for its direction. Another indicator of pound direction can be seen at EUR/GBP as the pair is trading lower since the beginning for the week. A clear break of 0.9160 could put further pressure into the pair towards 0.90
So far stocks are trading down, however that seems to be more of a profit taking move by investors who are locking their profits after a wild ride yesterday. The market sentiment is positive for now and the test will be in the coming weeks when we have the next load of employment data. The risk appetite seems to be back in the markets for now and yen has weakened immensely as a result, however as for all market rallies in the past, beware of the Â«bear trap€ which always comes back to haunt the bulls€¦