Daily Reports FX Greece 9th October 2008

publication date: Oct 9, 2008

Will The Coordinated Move Help Markets From Further Collapse?

Another day full of action we had yesterday, when 7 Central Banks decided to do a coordinated rate cut in order to bring some liquidity in the banks and some kind of stability after the recent turmoil.

The banks of England, Euro zone, America, Canada, China, Switzerland, and Sweden acted all in a desperate way to restore the negative sentiment that is already been established ,and the reaction immediately afterwards was mixed. The currencies moved up and down for most of the day and the stock markets acted in the same manner. It is interesting to mention that traders although initially welcomed the move, are still skeptical as to what the next day will bring and until we see the confidence back in the markets, things will remain the same.

EUR/USD is trading higher today, after the pair broke the 1.3750 but it will be crucial to see what happens later today and if the move will continue. Next level to watch is 1.3820-50. If the pair keeps its gains we might see further correction unfolding. However watch out for dollar bulls because they are always present in every chance they get.
The economic calendar today is almost empty and the only announcement from US is jobless claims which are not expected to have any reaction. The market sentiment is still negative and traders are still in a daze from yesterday’s events. In order to see the confidence back in the markets, we need to see some proof that the situation is under control and that seems like a farfetched dream at least for now.

The pound is still negative in comparison with other currencies and especially the euro and that reflexes in EUR/GBP which moved 200 points yesterday for the first time from 0.7718 to 0.7940. IMF yesterday said in a statement that expects the BOE to cut rates further and traders already start to price in more cuts to come. A clear break of 0.7980 will open the way towards 0.80.

Mr. Trichet said yesterday that the bank is considering further cuts, as inflation is decreasing day by day. With signs of slowing in European countries and rumors of Banks in Germany and England going bankrupt, it is clear that Euro zone is in trouble and the recession fears are getting bigger every day.

Let’s see how the US markets react after the open today and how they will play out yesterday’s move. The fact that risk aversion is the new theme in the markets gives the chance for traders to take advantage and therefore in every correction we get, we see continuation of the fall.

Don’t forget that whatever the response of Central banks and governments to the recent global crisis, it is still perceived as act of desperation and that alone is enough for the fear and uncertainty to remain alive. Tomorrow we have the G7 meeting and this again will be crucial as the leaders will be answering the recent turmoil and a way to avoid a global recession.

So, until we see signs of calm in the markets, the theme is to go with the flow. A definitely “no”  is to try and find a bottom in the markets at the moment as with everything that is being happening the move  seems bottomless. One thing is for sure, when the reversal in the markets happen nobody will believe it and it will be too late for everyone to get in as it always is the case…