Independant Analyst: Lena Manousarides 5th November

publication date: Nov 5, 2008

Markets Await their Fate After US Elections…

America has spoken: Barak Obama won the elections in a historic win as he became the first African American President in the history of American politics. Markets welcomed the result with relief and Asian markets gained more than 400 points after the formal announcement. The same thing happened to the greenback which gained all across the board and EUR/USD revered its previous gains towards 1.31 and slumped once more towards 1.27!
Today the economic calendar has enough releases to keep us busy and traders are waiting with anticipation the ADP number which will give us some kind of idea what the payroll data will give us later in the week. The report is not accurate at the best of times; however there is always a reaction after the release. Analysts predict that nonfarm payrolls will be very disappointing this month and markets are bracing for the bad news to unfold. European markets are already down today and it will be interesting to watch the New York open. Also we have the ISM Non Manufacturing release today and the number is expected to dip once again. The latest data out of the US shows that its economy is heading towards recession and the final proof will come this Friday with the NFP.
EUR/USD dropped once again towards 1.27, after yesterday’s gains, which took the pair above 1.30. The market rejected 1.30 once again and after the election result the dollar appreciated once again. At the moment the pair is moving within a tight range from 1.28 to 1.29 and traders are waiting for the data in order to commit which way to go. If the ADP shows a negative number this could spark a selloff in DOW JONES and oil and therefore may increase the dollar’s strength due to risk aversion.
All the economic data out of UK and Euro zone disappointed today, after the numbers showed that the financial crisis starting to affect the real economy and therefore analysts predict that the situation is likely to get worse in the coming months. The sterling is moving again without clear direction; however traders sell the pound in every chance they get.
GBP/USD was trading heavily yesterday following the Euro’s strength, printing 1.61 - a daily high. However the move was not enough for further gains, as economic conditions in England are poor and traders are reminded the country is far from recovering its recent meltdown. Tomorrow is a crucial day for the pound, as BOE decides the interest rates and all things point to another hefty rate cut.
The sentiment is mixed at the moment as many feel that the outcome of the elections was positive in a way, as markets await Obama to solve all the problems in the economic sector. The reason we saw a rally in DOW JONES was due to investors hope that the new government could mean a fresh start and maybe a better economic future. However, this can have a boomerang effect as markets could slowly realize that the crisis will not be resolved easily and the damage might just be too severe to repair…