Market Today Update!

Written by Research | 19 February 2010

UPDATE!

February 19

The Euro's value and it's identity as a common currency for the EU has been suffering recently by concerns of a weaker currency because of the sovereign debts in the European community of nations led by Greece. The EUR/USD's decline from 1.5100 area on early December has extended below 1.3600.

These price levels are more appropriate for Euro Zone's economy according to Columbia University Professor, Robert Mundell - Nobel Prize who happend to author the unification of a common curreny in Europe. The recent TV interview on Bloomberg News where Robert Mundell affirmed that the European Union indeed has paid for the price for an overly strong euro in the past and they can no longer afford a second anymore as exports may suffer more. He also made mention that the EU nations should not allow the Euro vs. the USD to appreciate above 1.40 on the next decade. And the ideal price levels should be around 1.2500 - 1.3500 where the EU wold benefit more in trade relationships.

These remarks made have been considered by many although, the market's reactions are uncertain despite of the fact that the continued concern of the EU deficit problems are focused in the market place. The free flow of risk capital in the market has always been the basis of the law of supply and demand working in a free market place. However, the market has been quiet lately since the the prices stalled after the lifeline for Greece were announced by Germany and the European community's support that led to the current market conditions.

The correlation between the US dollar and underlying risk trends was slackening throughout the day Wednesday. However, when the Federal Reserve announced a surprise hike in the discount rate just after the close of the US market; the divergence would turn from modest to blatant. The bank announced a surprise hike to the rate at which banks borrow from the Fed of 25 basis point to 0.75 percent. A dramatic response by the US dollar to the Fed’s surprise move is to be expected.

This was the immediate interpretation that dollar traders would take. Just minutes after the release, EURUSD plunged more than 100 points to clear the stubborn 1.36 level and GBPUSD dropped 125-point points to overtake 1.5550.

February 17

The UK umeplyoment has been the limelight story that the increase on jobless claims have been dragging the growth on the economy. However, in spite of the news the GBP/USD has somehow recovered from their lows 1.5532 to the recent high of 1.5814 for the week of Feb 19 and is currently holding regardless of this news on unemployment at 1.5780 as of this writing.

However, after careful analysis and with this update the momentum for the upward movement has been lost when the GBP/USD went back to its price level of 1.5710 and the EUR/USD at 1.3624 respectively. The likely scenario to break and continue its down turn may eventually happen when the correction for the USD may seem to be over as mentioned that it was only on a corrective mode. The EUR/GBP which was indeed favorable had gone back down to it initial support for the week at 0.8675. If and when it does break the 0.8655 a continuation of the down turn will be made. the currency market is in a wait and see attitude when it stall and tries to break their support levels.

With the USD correction which led the Gold prices to top at US$1,122.15 but retreated lower while waiting for the housing numbers which is expected higher for housing starts and home buildings today in the market news. Meanwhile, the EUR/USD also recovered from their lows of 1.3531 from last week and now is working at 1.3720 from a recent high of 1.3788. Although, we are looking at a probable higher numbers back to the initial resistance of 1.3880 which happens to have some legs on the recovery after the holiday thin markets in Asia. But if the volumes and momentum would be lost then the opposite is pretty much in the making. As what is currently behaving for the prices as of this writing. that is why it was necessary for an update to be writtten in support of our marketview analysis. Although, we did mention that this correction was only temporary.

The USD/JPY has just set a nine-day high at 90.92, up from today's opening price of 90.19. The pair has gained almost 140 pips from its seven-week low on February 4 at 88.55. And is currently at 90.77 as of this writing.

The EUR/JPY has followed suit and just hit a nine-day high at 124.82, up from the opening price of 124.12. The pair has gained over 400 pips from its 11-month low established on February 5 at 120.70 and is currently at 123.75. the same holds true for a break for the EUR/GBP is what the market is carefully looking at. The final movment will then be made this thursday and Friday.