The dollar continues to gain across the board and it looks like risk aversion has once again returned amid new fears of a failing banking sector! What sparked this fear and uncertainty was various statements from the IMF - warnings that toxic assets could easily mount up to more than 4 trillion. Markets fell yesterday early in the New York session and continued until the Asian and European opening this morning. This only proves how fragile the current situation is and that lately, markets have been driven only by how traders feel about the economic prospects.
The EUR/USD failed to break on the upside, after yesterday's brief rally towards 1.36 found an abrupt stop. The dollar€™s new found strength took the pair all the way down to 1.3330 and a break of that level this morning indicates more losses may be in store. A clear break of 1.3280 may find more willing sellers towards 1.3230 in the coming hours.
The GBP/USD failed also to break towards 1.50 and yesterday's rally found its maximum at 1.4970. For now, the pair seems poised towards 1.45 ahead of 1.4480. In the daily chart this level is important to hold for now if more gains are to be seen.
What we are witnessing in the markets this week so far, is post G20 euphoria, as last week we saw big rallies in futures and trader's confidence returning. However, even after all the reassurance given by President Obama and other world leaders that they are united and ready to tackle the current economic crisis, investors lost their new found confidence in light of negative banking results. The dollar and the yen also seem to be the winner of the G20 so far, as both currencies have gained from the need of investors to buy the assets as a safe haven.
Today the economic calendar has a few economic releases from the Euro zone, with the GDP coming out worse than expected, hence giving the euro one more reason to plunge against the dollar. The UK Industrial Production came out slightly better than expected, however it did not manage to give the pound a much needed boost. The EU economic sentiment is getting more and more negative by the day and speculation is now growing amongst traders that the ECB will be forced to cut rates to below 1%. It is quite obvious that Mr. Trichet and his pals and planning more easing in the coming sessions, however the reluctance to act quickly and cut more heavily, makes investors wary and has the opposite effect of what the bank tries to achieve, which is price stability!
The gold has managed to break the $900 level easily in the beginning in of the week and that again is thanks to investor€™s new found confidence, as we have determined that traders buy the gold when they feel low about the economic prospects as a safe haven asset and then sell it when their confidence returns. The next level to watch is $850, which could be a good level to buy, however the current cloud of fear and uncertainty hanging over the market could give gold its safe haven status back, when it may bounce back towards $890-900.
Let€™s see what the day brings and in the absence of important economic data, the markets may move once again from news headlines and traders sentiment towards the economic outlook. The G20 message was clear: all countries are (or should be) united for a better economic tomorrow. The message sounds good and certainly a trader€™s morale booster, however it will be imperative to see it become reality, as the severity of this recession continues over the coming months. For now, let€™s try to find short term trading opportunities and not to look for the market bottom now or tomorrow, because there might not be one for quite some time€¦