The dollar has managed to gain back its losses slowly after today€™s monetary meeting by ECB and BOE and although Mr. Trichet told reporters that rates are appropriate at those levels, the confidence of market participants is fading as the economic outlook seems uncertain. The green shoots of economy are starting to wilt and risk aversion is returning to haunt investor€™s.
The EUR/USD is moving like a roller coaster today, with pair declining below 1.42 once again and printing yet another weekly low at 1.4060. The pair cannot sustain its new found gains above 1.43 and that is a reality, as dollar is coming back to claim all its recent losses. Next level to watch now is 1.4030 ahead of 1.40 and these levels have to hold for now if further upside is to be seen in the coming days.
The economic calendar had many important events today, with Halifax house prices out of UK coming out much higher than expected giving the pound initially a move on the upside, however the absence of any more information regarding the economic outlook failed to convince traders to buy the pound further, hence the decline afterwards. Later on we had ECB and its rate decision which came unchanged too, however the combination of a relatively non committal Trichet together with risk aversion coming back, gave the euro a nasty surprise on the downside which took the pair all the way down to 1.4060
Markets are not sure anymore about how sustainable is the current rally and optimism that we witnessed these days and as usual, risk aversion came back in the markets and took stocks equities and commodities victims of yet another slide. The dollar seems to be benefiting from all this and it makes one wonder if the recent dollar weakness was overrated and if the dollar will continue its upside trend when the markets realized they ran before they could walk.
Things to watch for now, is EUR/USD and how it will react at 1.40 level which if it breaks could easily take the pair down to 1.3960 and GBP/USD at 1.60 which is a good support level for now. The current market sentiment is negative and today we witnessed many whipsaws all across the board, therefore, until the markets settle back to their €œnormal mood€ it is advisable to hold small positions or stay aside. Don€™t forget tomorrow is another very important day for the dollar and all markets, as nonfarm payrolls will show if the €œgreen shoots€ in the economy is real or wishful thinking€¦