Independant Analyst: Lena Manousarides 21st October

publication date: Oct 21, 2008

Dollar Strong Across the Board Thanks to Bernanke’s “New Plan”…

Another positive day for global markets, as DOW JONES finished yesterday up 400 points and NIKEI followed on the same pace.
Bernanke did manage to create another interesting day for us all, as he admitted that problems although continuing to resurface in the US economy, nevertheless, he is doing everything in his power to restore some lost confidence. In order to do just that, Bernanke suggested to the House a new more advance plan to help homeowners and fight the recent credit crisis at its source. Markets seem to love that idea and although his words may suggested another rate cut in the coming weeks, dollar got stronger once again taking its cue from stocks.
EUR/USD didn’t manage to break 1.3530 and instead it dropped below 1.33 to a new daily low at 1.3285. The move was not strong enough to revisit the recent lows at 1.3250 however the greenback was once again bid all across the board. A clear break of 1.3250 will open way towards 1.3150-80.
Today the economic calendar doesn’t have a lot to offer data wise, however it will be interesting to hear what BOEs governor Mervin King has to say in his speech later today. He will be speaking about the recent economic developments in the UK and traders will monitor closely his words for any hints as to what the bank's plan is for the next rate decision. Analysts speculate that due to the negative economic data and the reality of the credit crisis which has hit England in the last year, the bank will have to be forced to cut its rates further. The pound is still trading heavily on the downside and until we see some signs of relief in the economy, that might continue.
Today we also have the BOC rate decision and the forecasts want the bank to cut rates once again. USD/CAD is trading higher every day and traders already have priced in the cut. Beware though the rate decision might take an ugly turning like in the past, were market participants made their own conclusions and the bank disappointed them by doing nothing. If the rate decision is unchanged then we might see some life in the Canadian Dollar which has been weak to say the least in the latest sessions.
It will be also interesting to see how the markets react today and if we have another positive day, especially after the better earnings results we had yesterday from US Banks and other Financial Companies. This is a good start and good news for the global markets, however before we commit to go long, let’s see first how the recent correction unfolds and if it’s real of just that: a simple correction…