Independant Analyst: Lena Manousarides 31st October

publication date: Oct 31, 2008

EUR/USD Rejects 1.30 Again! More Dollar Strength Expected?

Another week is coming to its end, with markets still unsure of what the global economic future will bring. NIKEI fell more than 400 points overnight after Bank of Japan dropped its interest rates by 0.30 more than traders anticipated and the reason they went to that extreme move was fear of the economic meltdown hitting Japanese Banks in the coming weeks.  Yen seems to be unchanged from the move and USD/JPY still hovers around 0.98. Let’s not forget that this time last week we had a yen appreciation against all currencies and due to risk aversion the Japanese currency made record moves against its other counterparts.
EUR/USD dropped again after it hit 1.3295 during yesterday’s session. The pair didn’t manage to break important resistance at 1.33 and therefore it dived again today. Let’s not forget that at times of uncertainty and fear, traders are not convinced easily that things got better and even with European markets and DOW JONES appreciating, the sentiment remains negative. Next level to watch will be 1.26 ahead of 1.2560.
Today the economic calendar has a few releases from Europe, with German retail sales which dropped again unexpectedly pushing euro to new daily lows below 1.27. The economic data out of Europe continue to disappoint and until we see some kind of positive numbers, the euro won’t have the chance to get bid. Also later today we have releases out of US, with consumer spending and income together with consumer confidence. The fact that the latest data form GDP showed economy contracting combined with a record low consumer confidence spark new fears of US recession and the move by FED to cut rates shows that the Bank fears the worse is yet to come.
US elections are very close and the closer they get the more wary traders get as the outcome of who wins will be crucial for dollars direction in the coming months. Also later today we have a speech by FEDs Bernanke at a financial symposium in Boston regarding the latest financial meltdown and traders will monitor closely his words for further hints as to what the bank will do to fight recession. Analysts predict that FED will be forced to cut rates once again and drop the rate below 1% for the first time in the history. This move one could say could bring more panic than relief as desperate times need desperate measures!
So far Europe and markets are mixed and it will be interesting to see how DOW JONES will react after the New York opening. One thing is for sure these days, stocks and currencies go up only for a little while and traders should try not to get attached to the upside as the risk of another meltdown in the global markets is still great.
Two things for the rest of the day to watch are US data and Bernanke’s speech and also the New York closing later on, as today is the end of the week and also the month and therefore traders might be adjusting their trades accordingly…