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.

The unusually large Interest Rate cut made by the European Central Bank (ECB) of 0.75 basis points made it clear that the ECB is trying its best to boost the Euro-Zone economy. The EUR was bullish as a result of the cut yesterday, and rallied against all its major currency counterparts. The EUR/USD currency pair traded as high as $1.28, almost 3 cents higher from the session low of 1.2550.

Despite yesterday’s late recovery, the UK’s leading index has halted a three-day rise after investors failed to react positively to the BoE’s base-rate cut. Markets worldwide have shown losses, and the US markets seem poised to finish a fourth week in decline, opening down this morning amidst rising redundancy rates and low payroll figures.

The yen had rallied to six-week highs against the dollar immediately following the U.S. non-farm payrolls report, reviving speculation the Bank of Japan, also battling a recession, may intervene in the market to temper the Japanese currency’s strength, which has hurt the country’s exports. As the global economy worsens, analysts said investors will continue to snap up the U.S. dollar and yen as they pare back their holdings of risky trades financed by both currencies’ cheap rates.

Investors, fearful that the job losses will cause consumers to cut back spending and make the profit outlook more dire, sold stocks more broadly, but the energy sector was the biggest casualty. In fact, despite the increasingly effort from central banks and government to tackle our global situation the picture of the world’s economical future look a little bit cloudy.

Massive stimulus plans to drive the world out of recession took center stage on Wednesday with the European Union asked to provide a 200 billion euro boost and China announcing its biggest interest rate cut in 11 years. The stimulus moves in Europe and China followed Tuesday’s announcement by the U.S. Federal Reserve of an $800 billion plan to buy mortgage-related debt and back consumer loans. China’s cut in banks’ benchmark lending and deposit rates by 108 basis points came a day after the World Bank said Chinese growth next year would be around 7.5 percent, the slowest rate since 1990.

The European Commission approved a package it hopes will be taken up by EU member states aimed at giving the sagging European economy a sharp, temporary boost with a 200 billion euro ($260 billion) spending plan across the 27-nation bloc, an EU source said. The plan, higher than initially thought, calls for a targeted and temporary fiscal stimulus of 1.5 percent of EU gross domestic product. National measures would account for around 170 billion euros, or 1.2 percent of GDP, and EU and European Investment Bank budgets around 30 billion euros.

The stimulus moves in Europe and China followed Tuesday’s announcement by the U.S. Federal Reserve of an $800 billion plan to buy mortgage-related debt and back consumer loans. With market-moving figures such as Unemployment Claims and New Home Sales being released, the market will likely see higher-than-usual volatility. Traders should wait to see which way the USD moves after the release of this data and enter the market accordingly.

The USD is falling on hard times, and right before the holiday season in the United States. The greenback has so far witnessed a sharp decrease in value against its currency counterparts. EUR USD is in a consolidation after the last bullish movement following the previous uptrend. However,there is some interesting issues in this scenario. The EUR did in fact make strong gains against the Dollar, but it remained flat against every other currency counterpart.

This indicates two important pieces of information. First, this means the EUR did not move the EUR/USD pair, the USD did the moving. Second, it tells us the EUR is not moving much at all. This means the Euro-Zone economies are not having much of an impact on the value of its currency. The EUR may in fact be waiting for clear signs of direction from the United States’ economy before picking a direction.

As the global economy weakens further, major economies all over the world are cutting interest rates and weakening their currencies to boost investment which it’s now leading investor to seek better opportunities and founded with JPY and helping to boost the Japanese currency to new strengths. For that reason, the JPY is currently experiencing appreciation across the boards and we can think that the factor moving the Yen may not be found in Japanese economic data, but rather in the strength of the global economy. The JPY may continue to gather momentum, possibly breaching the 92.00 level.

The U.S. currency has finally retained some gains against the EUR, after a sharp decline for the last two days which saw a decline in value to as low as 1.3059. The Euro-Zone currency may go further against the US Dollar after the European Central Bank (ECB) cut its main refinancing rate by a half-percentage point to 3.25%, making it the second cut in a month. The EUR continues to deteriorate after falling 0.2% yesterday.

Although euro has rebounded from 1.2826, yesterday’s sharp retreat from 1.3117 signals a top has been formed there and consolidation with downside bias would be seen but break of said support is needed to bring correction of recent rise to 1.2795, then towards 1.2750. However, the trend has touched the lower bollinger band at 1,2789 retracting towards 1,2860 maintaining a downtrend where 1.2700 would contain weakness and bring another bounce.

GBP USD is in a range between 1,5645 and 1,6180. The pair moves without trend and swinging around exponential moving averages (EMA 50 and 100). The volatility decreases. Bollinger bands are tightened. The price should continue to move in 1,5645 / 1,6180 range.

Yesterday the JPY saw bearish results against most of its major currency rivals. The JPY was predominantly influenced by the other major currencies’ behavior, however, as only one indicator was published from the Japanese economy. It appears lately as if the JPY is being motivated by outside factors more than by the Japanese economy.

The yen and the dollar rose against the euro and headed for record monthly gains as signs of a global recession led investors to seek safety. Japan’s currency also advanced after the Bank of Japan lowered the target lending rate by 0.2 percentage point to 0.3 percent. The euro fell as inflation in the 15 nations that share the currency slowed to the lowest since January, making it easier for the European Central Bank to lower borrowing costs.

The yen climbed 1.4 percent to 125.48 per euro from 127.31 yesterday. The yen traded at 98.67 against the dollar, compared with 98.61. The dollar rose 1.4 percent to 1.2733 versus the euro from 1.2915.

The Euro was down at 1.2915 in late U.S. session after a volatile session yesterday. The pair has just attempted to get above the 1.2800 level, yet failed. In fact, I can see a tough congestion zone between 1.2800/1.2830 that could give the pair a hard time to the upside in the next hours. Above it, next important resistance will be around 1.2880, 1.2940 and finally 1.2975. Under 1.2745, 1.2690 will be exposed, and under that zone, 1.2655 will be the target to consider.

The British pound slumped against dollar through most of the day as the 61.8 percent fib of 1.7516-1.5257 at 1.6653 provided resistance. UK data didn’t work well for the pair either, as UK Nationwide home prices dropped 14.6 percent in October from a year earlier.

The USD/JPY gained the most since 1974 on a global stock rally and speculation. The improvement in overall risk sentiment led investors to sell the low-yielding yen and buy higher-yielding assets. Carry trade unwinding that had been powerful lately came to a halt. The USD/JPY long-term trend is still down. There are resistance in the 99-area and support in the 96. Overall, the pair will likely continue to follow developments in the US stock market.

The Euro will look for a short-term corrective recovery as fear eases slightly, but rallies will tend to attract selling pressure relatively quickly given the underlying lack of confidence. The Euro rebounded back to above the 1.25 level in US trading as volatility levels remained high with a slight easing of fear curbing immediate dollar demand. Erratic trading persisted on Tuesday with the Euro gaining later support in Asia as stocks rallied from early lows with a move back to around 1.2570 while German consumer confidence.

The Pound also made an upward adjustment against the U.S. dollar yesterday. The currency couple made a peak at 1.6008 and closed at the same price. The current rise should also be seen as an upward corrective movement. The CCI indicator is now in final oversold area on the monthly time frame. During that phase however be careful if opening long positions. The nearest resistance is 1.6310, followed by 1.6405. CCI is in the direction to cross the 100 hour line on the daily chart, assuming potential upwards pressure.

China increasingly appears to be the world’s last center of growth and has said it would not fall victim to the crisis. It cut its interest rate to 6.66 percent from 6.93. Norway’s central bank cut rates by 50 basis points to 4.75 percent, ending more than three years of tightening. China and Norway kicked off the latest round of global interest rate cuts, with the United States expected to follow later on Wednesday as policy-makers tried to soften the world’s economic downturn. The rate cuts lifted stock markets for much of the day but analysts said any recovery would be short-lived given that a sharp economic downturn was already in progress.

Market participants are also betting the Federal Reserve will cut benchmark U.S. interest rates by at least a half percentage point later in the session from the current 1.5 percent. That should further boost U.S. equities and enhance risk appetite, which could weigh on the dollar even more. The U.S. dollar weakened on Wednesday on a modest easing in risk aversion as investors grew comfortable paring holdings of the currency given a rise in stock prices around the world.

It is also expected that Bank of England and the ECB to cut rates again at their respective meetings on the 6th November. London interbank offered rates (LIBOR) for dollars eased across all maturities on Wednesday, with overnight dollars <USDONFSR=> fixed 9.5 basis points down at 1.14000 percent, their lowest in a week. Three month rates were 4.5 basis points lower at 3.4200 percent <USD3MFSR=>, while three month euros and sterling rates also eased.

GBP USD is in a range between 1,7160 and 1,7500. GBP USD moves without trend and swings around exponential moving averages (EMA 50 and 100). The price should continue to move in 1,7160 / 1,7500 range. The risk/reward ratio is too high but short conservative positions following EMA 5 and 8 may turn worthwhile.

Resistances: 1,7510 – 1,7635

Supports: 1,7250 – 1,7135

2008-10-20

We could take a short position at 1,3470. We will put the stop loss above 1,3540 (-70 pips). The targets are 1,3350 (+120 pips, risk/reward 1:1.7), 1,3250 (+220 pips, risk/reward 1:3.1) . Each trade is dangerous, take care and put your stop loss.

Resistances: 1,3500 – 1,3540

Supports: 1,3400 – 1,3350

2008-10-20