February was a very difficult month to predict price trends which keep DailyFX analysts cautious when making their bets. Rate cuts, stimulus plans and other efforts to promote growth from the various governments were offset by lingering concerns over the financial sector and the lack of a coordinated effort.
The U.S. government finally reached an accord on a $780 billion dollar stimulus plan in February which many thought would help inspire demand for riskier assets. However, further signs of trouble for banking giants like Citigroup, Bank of America and Lloyds of London kept traders cautious and helped send equity markets lower. U.S. Treasury Secretary Tim Geithner’s lack of details on the bank recovery plan and the G-7 failing to produce a coordinated efforts left investors wondering if governments could generate solutions to help keep the global economy from entering a recession. Yet, as central banks continued to cut lending rates and more stimulus was planned, markets were optimistic that a bottom would come soon. As traders remained on the fence, every news cycle brought the potential for short-term volatility which left many currencies without a defined direction.
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What Has Changed?[/B]
There has been a clear increase in risk appetite as central banks have pulled out all the stops and have brought interest rates near zero and begun quantitative easing measures. The FED, BoE , SNB and BoJ have all started buying government bonds in an effort to spark lending and loosen credit markets. The U.S. housing markets which was the source of the current financial crisis has begun to show signs of bottoming, as housing starts, existing homes and new homes sales have all improved. Rising commodity prices are also a strong sign that risk appetite and confidence is returning demonstrated by the CRB index rising nearly 30 points since the end of February. Yet there are still signs that many economies are far from recovering. Germany saw business sentiment fall to a 26 year low of 82.1 and Japanese exports plunged 49.4% from a year ago. This has led to clear support for high yielding currencies like the Euro, Australian dollar and the “Kiwi”. Although recent price action has been more defined, it still remains cloudy which has lead our analyst to continue to make conditional picks.
