Independent Analyst: Lena Manousarides, 14th November 2008
publication date: Nov 14, 2008
Dollar at Crucial Point: To Buy or Not To Buy?
What a rally we saw in DOW JONES late last night, with the session closing up more than 500 points. Traders were selling heavily at the beginning of the session amid worries for the global recession, however in the last hour we saw a great comeback and aggressive gains were being made. Asian stocks were positive too and the same is now happening with the European markets.
Is this it? Are markets now all of a sudden more positive? Is global recession not a threat anymore? Are we ready to buy in a bear market? Well, it is natural for all of those questions to be asked and the answers lie in how the markets will react at the close of the week. Let’s not forget that when the trend is down and all we have seen this week are losses, it is quite natural to expect corrections and maybe aggressive ones too. There were reasons for the DOW JONES reaction and that maybe was the fact that it nearly approached a double bottom, which technically is a very good support and therefore it bounced back, before maybe trying even lower in the coming days. Also, traders didn’t want to miss the chance to buy stocks at such cheap prices for a quick buck. Whatever caused the sudden positive sentiment we see now; there are many reasons why it should be just that: a simple correction. The data every day suggest that more countries will follow in Germany, the UK and the US’s steps and we might not be able to avoid a global recession in the coming months.
EUR/USD gave up all its gains just before New York closing and from lows at 1.2380 it bounced impressively towards 1.29. The move was purely a follow up from the rise in oil and DOW JONES and it was contained at 1.2850. So far today the pair is moving within the 1.27-1.28 range and traders are waiting for today’s busy economic calendar before they commit to which way to go. Next levels to watch are 1.2670 on the downside and 1.2880 ahead of 1.2930 for the upside.
Today the calendar has some important releases out of the US and Europe, with Euro zone CPI numbers coming soon and also US retail sales and consumer confidence. Both data out of the US will be monitored closely by all market participants and if data show really bad numbers then we might see renewed decline in DOW JONES and therefore maybe dollar strength due to risk aversion. In past times, when we had bad data out of the US it would be natural to see the dollar weakening heavily across the board, however this does not seem to happen anymore and the dollar is moving according to risk aversion.
The main event of the day though is the Frankfurt conference of Central Bankers where both Trichet and Bernanke will give their testimonies regarding their monetary policy and how it is affected by the financial crisis. Their words can be eventually very moving for all markets as any reference on future decisions regarding rates will be crucial for euro and dollar direction. We know that the situation is not good and we know that all central banks and governments are working together as they say to fix things; however we don’t know how low they are prepared to go in the interest rates to accomplish that. Traders are waiting for their statements before they decide any further moves. Any hint from both regarding rates and markets will go crazy!
The fact that we have G20 this weekend makes everyone nervous and traders may not want to leave open positions during the weekend as the danger of huge gaps is always there. The outcome of G20 will set the tone for next week and if markets interpret it as positive, then we might see the continuation of the positive sentiment we saw yesterday and today…
