What a day yesterday, with all currencies in a correcting mode for most of the day. Dollar got sold off all across the board, with EUR/USD renouncing slowly, from 1.4170 up to 1.4285. The most impressive move though was made by the pound which it out staged any other daily performance. The pair got bid fast and retraced the whole move, making daily highs at 2.0517.
What a crazy week this has been so far! Monday we saw an aggressive fall in all yen related pairs and also strengthening of the dollar, and then Tuesday we saw almost the whole move reversing for no apparent reason. The lack of economic data in combination with the rally in equities and stocks, made investors wary of which direction to take and so all we saw was roller coaster moves.
Today, although we don�t have many releases, the only one in all traders� minds is the Existing home sales. With all housing data being really poor last week, investors are nervous when it comes to new economic data, as the risk to the downside is more real now, than ever.
As the time for another FED meeting approaches, traders start to wonder what the next move by Bernanke will be. Most analysts predict that due to negative data all month and further slowing in the housing sector, the bank will cut rates again, as early as next week. Although rhetoric from FED members has been neutral to hawkish when it comes to inflation, one wonders how long it will be till we have another financial crisis. The Bank will have a difficult task once again, trying to calm investors as the problems from the credit crunch are still visible and the recent data show that there is more to come.
EUR/USD found good support at 1.4130 and since it touched that level, it hasn�t looked back. With the trend in the pair still up, and many traders wishing to buy euro at low levels, there is possibility for another wave of bids, to take the pair back at double top 1.4350. Mondays move though, gave a small fright to euro bulls, as the risk of dollar being bid as a safe haven currency is always there. Let�s not forget, that if there are problems in the global economy, other countries can be hit harder than America and therefore it�s safer to put your money in dollars rather than some other currency.
It will be interesting to see how the cable performs today, as at the time of writing is near 2.0500 and if it continues the upward move, we might see next level of resistance at 2.0550. It might be a good level for shorts there, with more at 2.0585 and stops above 2.0610.
Let�s see how the market reacts to the data and how they will play the FOMC meeting, from now till the 31st of October�