A Trend Correction Has Occurred Today As US Consumption Contracted For The Fifth Straight Month In November

Initially, the distinct seizure of the financial markets beginning in October sparked a sense of panic and sent funds on the hunt for safety in the form of liquid, stable and essentially risk-free Treasuries. However, this extreme in sentiment has since clearly tempered – though caution is still holding to historical highs. A sense of stability has allowed investors the luxury of reassessing where their funds would be safest. Demand for treasuries is still at record highs as is seen in the negative yield in short-term T-bills recently. On the other hand, the outlook for growth in the US is particularly ominous and the need for bailouts from large industries compromises the sanctity of the government’s guarantee – not to mention the hope for any level of return on idle capital.

The dollar fell sharply against major currencies and the price of oil climbed ahead of this week’s meeting of petroleum exporting countries. EURUSD continues to go up and positive trend established itself. A trend correction has occurred today as US consumption contracted for the fifth straight month in November, highlighting the extent of the recession in the US. Bulls took over the bears and buying opportunities are near the trend line. The currency pair found a resistance at 1,3567 where should bounce for a while. If it is break down that should set the scene for a choppy decline. If it is continues with the correction it can be testing the 1,4000 levels

The Pound rose to as high as 1.5068 despite the Right move housing report showing home prices falling for the sixth time in the last seven months. The report showed a 2.3% drop in December listings and predicted that values would decline another 10% in 2009. The failure of the housing to find a bottom may force the BoE to continue their current easing policy and the expectations of lower interest rates may limit the upside potential of the Pound. Indeed, markets are still; pricing in another 45 bps of rate cuts over the next twelve months.

Analysts think that is likely a result of heavy discounting and promotions by retailers during the US holiday shopping season, which should extend through December. Once we get into the New Year, traders should watch these components as they will provide a good gauge as to the status of the consumer and how long the recession will last.