What a year 2009 has been for market participants all across the globe, as we saw markets collapsing, reviving, collapsing again and at the final hour closer to the year end, a general optimistic feeling that things are getting better, which gave stocks and equities a push to new yearly highs. We had it all in the last year, bad news, bad economic conditions, bad taste that something worse is cooking all across the board and also at the same time a new found confidence that rose from better than expected Non Farm Payrolls that things are not as bad as initially expected and that US is finally on the road to recovery.

The dollar seemed to be gaining at the last month of trading as December saw EUR/USD climbing to new yearly highs at 1.5140, only to lose all gains and collapse below 1.44 in matters of days, amid worse economic conditions in Europe and also a preference from traders to the good old buck. Let’s not forget that traders were closing their books for the difficult year and therefore the greenback gets affected in the process.

This year is starting with important economic news this week, as we have ISM manufacturing today, which is expected better than last month and also Non Farm Payrolls on Friday which will be very crucial for all markets as it will be another sign of economic recovery if the number succeeds to impress. Last month we saw a really good number of only -11.000 jobs which gave the feeling that the employment sector is getting back on track and if this continues this month, we may see stocks even higher and a dollar continuing its journey upwards. The trading conditions are stabilizing lately and this is visible in the EUR/USD as traders seem to buy the buck if economic news is positive like the good old times. Will this continue? Will fundamentals reflect on currencies like it was couple of years ago before the economic crisis hit the markets? That question will be answered in the coming months if risk aversion does not come back to haunt us.

Another factor that plays important role in the dollar appreciation is that traders and analysts are betting that interest rates may start to rise sooner than later as they have been kept close to zero for too long now. Chairman Bernanke of FED has said numerous times that the rates are in appropriate levels for now, however if economic news continue to impress on the upside, the bank may start to reconsider its current monetary policy.

The rise in oil we saw in the last week due to bad weather conditions and therefore more fuel demand, pushed oil back above $80 and it will be interesting to see if the move holds in order to reach next target of $85. The rise in gold also is another sign that traders are ready to move to riskier assets and this may continue in the coming months if market sentiment is positive.

For now, let’s see how the markets move this week and next and if we shall witness “The January effect” i.e. strong stocks and equities due to re positioning for the year after the closing of trading books. It will be very interesting to watch the ADP report this Wednesday as it will give the first taste of what the nonfarm payroll may be and if the number comes up positive for the first time since recession started, then we shall see market participants celebrate with further buying…

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