Today's most important event has been and gone, with markets being completely disappointed by Geithner's new bank plan and also Bernanke’s outlay of the current economic situation and ways to dissolve the crisis. The investors are clearly not convinced after the Senate decided to pass the stimulus package earlier today, as the plan on how to use the package failed to bring hope it will, or even may, save the day for the US economy!
It was fascinating to watch the markets gaining yesterday, in anticipation of the plan, with traders selling off the dollar as they did not see it as a safe haven, with new hopes of the “plan” being spread out across the markets! Also futures and equities gained; however come today, all the hype and confidence that traders once had regarding the economic future evaporated on the spot, after it was made clear the Obama administration has the plan in theory, but being able to put it into practice is a whole different ball game! Mr. Geithner came up with astronomical amounts of money in order to unfreeze the credit markets; however he failed to present to the markets a detailed and convincing plan as to how it will all work!
The EUR/USD plunged after the testimony and the pair found resistance again at 1.3070. The latter level did not give way and the fact that it didn’t make us wonder about the next move! The dollar is strong across the board and against the euro and now trades at 1.2890 at time of writing! If the pair closes below 1.29 today, there is a high chance we may have continuation of the move towards 1.28. For now 1.28 works as support, however a clear break may lead further lower towards 1.2760 ahead of 1.2730.
The GBP/USD is also trading heavily today and so far the pound did not manage to break 1.50! That shows there is risk to the downside for now, as investors know very well the economic conditions in the UK are deteriorating further and more cuts may be needed soon! The latest numbers show that things haven't gotten any better and King along with his pals may need to take drastic measures in order to stabilize the economy. That itself is a worry for pound holders, who are looking for ways to get rid of sterling at any opportunity! The next level to watch for is 1.4470 ahead of 1.4430 and if the latter levels don’t manage to hold for now, we may see 1.43 in the coming days!
The markets have spoken: In fragile trading environments the only way to go is to either stand aside of the action or join in the bearish sentiment! One day’s rally becomes the next day collapse and that is exactly what is happening right now in the futures and the currencies. The yen is a clear winner once again, as investors trust the currency at times like this, together with the dollar.
Let’s see how New York's session closes today and it is very possible the Asian session will continue on the same note!
It will be very interesting to watch the Bank of England's Mr. King tomorrow as he will speak about the inflation report, so traders should closely monitor his words for signals of what the next move will be! Zero rates for BOE too? Well, the FED has done it, the BOJ is there and likely to stay there, the ECB is looking to cut further towards 1%, so it's looking like the BOE may have to think seriously about the zero rate policy despite warning from bankers across England about the serious consequences which may arise.