Independant Analyst: Lena Manousarides 23rd October

publication date: Oct 23, 2008

It is True What They Say: “Trend Should Always Be Your Friend”…

The free fall continues for markets across the globe, with DOW JONES dropping more than 500 points yesterday and NIKEI also on a downtrend. The fear and uncertainty for the global economic future is what drives the moves these days. After the disappointing earnings we had from Banks and global corporations, traders are not sure if and when the world will head to recession and the fact the UKs officials said that the country is getting closer to recession makes everyone nervous.
England’s Prime Minister Gordon Brown told the parliament that he agrees with BOEs Governor King that UK is likely to enter recession soon together with US, France, Germany and Japan, due to the latest global crisis. His words were welcomed with renewed fears from traders regarding UKs economic fate and therefore we saw GBP/USD breaking 1.62 briefly.
EUR/USD is trading within 1.27-1.29 range since yesterday and only a break of 1.2980-1.30 can give the pair more room to breathe. However, on the downside If 1.27 gives way, then 1.25 comes as a possible target. It’s better to trust the old saying: “The trend is your friend” and go short any upticks on the pair. Until we see signs of stabilization and reversal signals, it’s better to go with the flow and sell at every chance given.
Many European officials have stated these days that they are happy with euro levels at the moment, and if we go back a few months we will remember several announcements by ECBs members that said 1.25-1.30 is a “fair” currency level for the European currency. That means that we might see the pair staying within these levels for now unless we have new risk aversion wave and more dollar strength therefore.
Today’s economic calendar is almost empty from important announcements, apart from UK retail sales which are  expected worse than previous month, however traders now are aware that UK data will be grim for the coming days and therefore unless the number is very bad we may not see any big movement. Also we have US jobless claims later today and a FED member speaking in a conference regarding the state of the economy.
Today we also have the Bank of Canada monetary policy report and it will be interesting to see the ins and outs of what went on after the bank cut the rates by 25pbs, only a few days back. USD/CAD is on the way to 1.27 and only there it might come to a good resistance, however whatever correction the pair does it is still a good idea to go long, especially with oil deteriorating.
Let’s see what today brings, and how the futures and stocks will react later today after the New York open. After two days of big losses in the markets we might see some correction, however if the sentiment remains negative then get ready for another “wild ride”…