Daily Reports FX Greece 1st October 2008

publication date: Oct 1, 2008

Euro Weakness Found Short Term Bottom at 1.40…More To Come?

Yesterday was quite a day for world currencies, with EUR/USD falling more than 400 points in a move which can only be described as violent and choppy. The reason was seemingly beyond the scope of fundamentals and technicals and could only be justified by the fact that traders closed their trading books due to quarter month-end and bought back the dollar to adjust their positions. Also the announcement that the now infamous bailout plan is going back to Congress for a second chance to be voted, gave traders some kind of reassurance that credit crisis could start to ease.

Other than that, the economic data from US was better than expected, however in order to start being optimistic about the state of the economy, we need to see a better number in the Non-farm payrolls later this week. Today we have the first estimation from ADP, which will be monitored closely by traders, and if the number is below forecasts, we might see the dollar getting pressured all across the board. The fact that the US economy had 9 months continuous negative payroll data, gives fuel to analysts to predict that if this continues for two more months, the economy will be officially in recession.

Today, apart from the ADP announcement, we have the ISM Manufacturing which will be interesting to watch as it is still below the psychological level of 50. If the number is better, the dollar could strengthen across the board. Traders don’t really pay much attention to fundamentals these days; however every surprise in the number either way is always welcomed.
The question now arises is what happens with tomorrow's ECB decision? The general market sentiment is Trichet will leave rates unchanged, as he doesn’t like surprising the markets, however due to the credit crisis which spilled in the European banks and the easing inflationary pressures, a rate cut could be in the cards for the near future. Analysts from several banks have already priced in at least two rate cuts before the year end, so it will be crucial to hear Mr. Trichet's words of wisdom in his press conference tomorrow.

So, two things worth monitoring today are the bailout plan situation, which is going back for a second vote and also the payroll data estimation from ADP. Both events will no doubt give traders some food for thought and if the answer of the Congress is positive, DOW JONES and the dollar eventually could gain big time, as the markets worries will be restored.
EUR/USD corrected its losses from 1.40, printing a daily high at 1, 4165 at the time of writing. As long as the pair trades above important psychological 1.40 there could be further correction towards 1.43. However, if 1.40 gives way later today we might see September’s lows at 1.39 once again. On the upside, the pair needs to break 1.4250 and 1.43 in order to continue its way up.  GBP/USD broke important support level of 1.7920 and printed a weekly low at 1.7760. The pair is still trading heavily and the daily charts show that this might continue for some time. A clear break of 1.7730 could open way for 1.7570 ahead of 1.75. On the upside, resistance lies at 1.7880 and 1.7920 were short positions could be taken.