Market Recovery but. . .

Written by JS T. Alexander | 10 May 2010

Volatility Remains on a Relief Market
Fundamental:

The concerted efforts by the central banks of providing close to a Trillion dollars have given the market a boost not only for the stock market pushing higher even before the opening bell of the US sessions.

This news not only gave a relief for a plunging Dow Jones since Black Thursday but also has provided a cooler atmosphere for investors on the Euro, except the traders are now as confused as ever and may result to some reluctance as they watch for all these promises turn into real actions. The difficulty of changing sentiments is that every single trader and investor would want to see how the market would really react. Although, it is quite expected that this will be more positive for the markets reaction and would spillover to the main currency in focus which happens to be the Euro and prompted to receive some recovery from the lows.

The European Central banks including the Federal Reserve and even the Bank of Japan would like be part of this global effort were everyone would be in the position to support the single EU currency at this time. As the Euro is basically being used in 16 countries of the EU community. However, when it comes to volatility in the market place it will definitely remain in place for some time until a clearer view would be seen in actual and timely release of the rescue funds. the more important thing is that with the involvement of these banks " expect the very active bank and institutional players would be in the market making major trades between the majors and specially the cross rates. The trade plays would be for some cross trading between interbank and institutions among each other were, swaps and rate differential would be in focus other than the Government Bonds.

Meanwhile, just be extra careful with the foreign currency flow of US dollars to the European community by the Federal Bank, the bank of Japan and the European Central Bank ( ECB). As we indeed have expected some more volatility that may take place even before the end of this month would take place.

Technical:

The recent report have also given justification for the weekly buying technical divergence for the Euro and the British Pound, but can be more identified with the GBPUSD even before the end of last week's trading. The current price adjustments would still hold however, the reaction from the closing and the present price have already made some positive reactions due to the fundamental news of the huge bailout amount of 1Trillion Dollars for Europe. Remember, there still lies the debt problems of Spain, Portugal and Italy that may also ripple to the rest of the EU countries. With the GBPUSD touching a high, as of this writing at 1.5040 and the EURUSD 1.3094 initially during the American session.

Although, the EURUSD may have limited up movements as the EURGBP may drag the Euro still slightly lower even before the end of the sessions in all three markets in the next few trading days. Working at the 0.8620 -50 range; its weakness will drag the Euro if and when the volumes of interbank traders may start building up position trades with some swaps for the expected central bank contributions to the package of 1Trillion. How much exactly will be exposed to this package by each central bank needs to be dissected and how much of this exposure would be hedged in the future. looking forward is what we need to analyze and draw an educated conclusion as to how this would affect the current market other than the relief recovery that we would be expecting for the week.

With the corrective mode on the USDX at the 83.57 low initially after touching our projected resistance price of 85.05-10, although it made some extended highs at 85.27.  Inasmuchas the USDJPY would recover from its low, the USDCHF may still take the lead ahead of the Yen as wide trading ranges would occur on the way higher and the second attempt to the 1.1380 may now be made as long as the volume build up continue. For now one pair will give way and stall then it would set the pace alternately with the other currency pair. reading the behavioral pattern for both major pairs may seem to be confusing for those who happen not tos ee the pattern.

However, this also made a corrective move for the Gold prices but rallied to $1213.80 high which we also projected within the $1220.00/oz. the major trend is still intact but because of the extreme volatility of the market, we would be cautioning traders and retail investors to be extra careful as the price swings will be wider than normal markets.

Also the NZDUSD maybe in a better position to have some realistic profit potential compared with the Aussie Dollar as it moved from 0.7080 to it current price of 0.7254. there is a strong possibility that this could be treated as an isolated case away from what is happening with the Euro. otherwise, the continued USD strength will limit any upward unless the USDX would correct first by then. 

More to follow as this is just the beginning of the week.

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