What a week this is turning out to be, with markets still dropping in the aftermath of Obama's inauguration. The prospect of a new era starting in US after 8 years of Bush administration, together with new hope that Obama will tackle the current economic deterioration left traders unfazed, as more bad news hit the wires yesterday about several US bank's earnings! The dollar was and still is the clear winner of this week and together with the yen are showing that traders are exiting all other currencies, especially the euro and pound.
EUR/USD is trading heavily since the beginning of the week, and the break of psychological 1.30 was done and dusted in a matter of minutes! As long as the pair trades below the later level, it may be open for further loses towards 1.2750. The next level to watch is 1.2830 ahead of 1.2780, which may work as support in the short term, however if the move is aggressive and stops get hit, further downside may be in store! On the upside, 1.30 should work as resistance, however if 1.3030 breaks, the pair may try further higher.
The pound has plunged since Monday after a short term rally pushed GBP/USD towards 1.48. However, the move was abruptly stopped when Darling announced the bank's plan towards the current economic crisis. Investors in the UK as well as the US have lost their faith in their policies, something made clear in the case of the pound! The UK government's controversial plans suggest solving the liquidity crisis by throwing billions into the system, a desperate plan necessitating the borrowing of more money giving investors the chills and making them lose even more confidence! Jim Rogers said yesterday he will not buy the pound from now on and that ...the UK is finished. His predictions are usually spot on and in this environment it looks like the pound may continue to deteriorate. As long as GBP/USD trades below 1.40 we could see another wave of selling towards the next psychological level of 1.35!
The economic calendar has no important releases from the US today, however we has some important data out of the UK. The unemployment figures were a top headline today; as they reached new highs, and also the BOE minutes which saw everyone voting for a 50bps apart from well-known dovish Blanchflower who asked for a whole 100 bps cut! The pound continues to fall on the back of the data and further words by Mr. King that the bank is ready to tackle the recession left traders cold!
Let’s see how the New York opening finds the markets and if futures will have another negative day after yesterday! The Obama euphoria didn’t seem to last long in the markets as right now investors are focusing on the bigger picture: the FED’s monetary policies and deflation prospect plus millions and billions for the stimulus package which in order for Bernanke to find he will have to either print new money or raise the taxes. Both scenarios are as catastrophic as they come! One thing is for sure, volatility in the markets seems to pick up and the best way to go right now is for us traders to either stay aside or sell on rallies…
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