Today the calendar is almost empty from important economic reports out of US and the only news we had was the inflation report of BOE and speech by King. The report showed that UK economy will continue to shrink next year as well and the level of damage is too big to fix just yet. Analysts now have started to expect further rate cuts form the bank and some even suggest that in the next meeting we may see another 150 pbs.
The pound has fallen to new records against the euro and new multi year lows against the dollar after BOE’s inflation report stated that not only the country has fallen to recession in the last quarter but the inflation seems to be easing rapidly. King said in a testimony that the bank will do everything in its power to fight the economic recession and inflation and if that means taking the rates down to zero, then so be it…
GBP/USD broke important support levels and double bottom at 1.5270 and in a quick move it printed 1.5190 before it corrected back towards 1.53 again. The pound is trading very heavily at the moment and it seems weak. Next level to watch is 1.50. If the dollar continues to gain in the coming days then we it may be unavoidable for the sterling to deteriorate even below 1.50.
EUR/USD is trading on the downside once again and during the morning we saw further fall towards 1.24. The pair could find resistance at 1.2680 and therefore could continue to fall from those levels. Next support level to watch is 1.2360 ahead of 1.24.
EUR/GBP is making new history and the fact that the pair broke 0.8190 which was the previous all time high, opens the way for further gains towards 0.85 in the coming weeks. Let’s not forget that the pair’s trading patterns has changed in the last year and although we saw at least 50-80 pips daily range before, now the pair seem to be making 150-200 pips a day! Many traders and analysts are talking about parity in the pair and if UK economic conditions continue to deteriorate we may see euro gaining further against the pound and parity maybe not a far fetched dream.
Traders are preparing themselves for the next two days which we have plenty of economic data out of US and Europe and on Friday a conference in which both Trichet and Bernanke will speak about the financial crisis. All those events could only fuel more dollar buying as lately the risk aversion gives dollar great powers!
At times that the global recession is nearing and the financial crisis is continuing to weigh on all markets, the best way to go is to follow the wave and at any corrections up to continue to sell. There is no point whatsoever for traders to try and find a turning point as it looks like there is no end to the collapse just yet. All the positive market sentiment we saw in the beginning of the week seemed to fade away and as I have mentioned before, traders may need to brace themselves for the worse maybe yet to come…
By Lena Manousarides
