The pound has started the day on the negative side, after UK data revealed that the economy is far from recovering and the economic situation got downgraded once again. Market players did what they know best after the announcement, by exiting the longs in pound and therefore we saw a massive liquidation all across the board on pound related pairs. This only proves one thing: the worst is not over yet and investors are getting punished when they €œrun before they walk€. All we saw in the last few days was a swift in market sentiment from negative to over positive and today€™s negative economic revisions wiped all gains printed yesterday.
The GBP/USD lost more than 100 points in a few minutes following the S&P€™ s ratings and at the moment the pair is trading just above 1.56, with daily low at 1.5520. It will be imperative for the pair to hold 1.55 if more upside is to be seen, however if further liquidation occurs, next level to watch is 1.5470 ahead of 1.5430.
The economic calendar has a few important releases today, apart from UK numbers which came negative, with jobless claims out of US later on, which are expected to be risen again last week and if that happens, the dollar may gain against the major counterparts as traders might lose their new found confidence that things are improving on the US economy. Also we have Philly fed Manufacturing Index which is expected to be higher so let€™s watch how markets react after the news and if stocks will continue to rally towards the end of the week.
It is so obvious that markets conditions are still fragile and market rallies cannot sustain for long, hence the whipsaws we see in currencies as traders are unsure of the short term market direction. We started seeing some volumes in euro and pound related pairs in the last few days and now it€™s time to monitor if further breakouts will occur in EUR/USD towards 1.3860 or if risk aversion returns to wipe recent gains.
How can one be sure of anything relating to economic recovery, when the officials themselves are passing misguided messages? For example only a few days ago FED officials were bragging about how things are stabilizing and improving in the economy and how they see early recovery. Today, the same officials declared that they are not convinced anymore that the economic stability will persist. Basically, what we need to do is ignore all rhetoric from €œexperts€ on recovery and try to trade the signals we see on a daily basis. The best way to go is to follow the short term outlook and forget about long term positions, as the recession is still a reality and the bad economic numbers keep coming back and strip off all hope and gains almost on a daily basis.
Let€™s see how EUR/USD moves for now, and if the pair has the power to sustain its recent gains. Also let€™s see how stocks will open at New York and if we have another day of loses amid negative outlook€¦