Today’s sample of Forex Analysis from ForexHound.com
For the fourth straight day, investors dumped higher risk assets for the safety of the U.S. Dollar. Today’s weakness reflects a change in sentiment toward lower yielding assets. Many investors are beginning to realize that central banks are gearing up to end their stimulus programs and begin considering other ways to remove excess liquidity from their financial systems. As a result, investors are taking money off the table in the asset classes that benefitted the most from the weaker Dollar.
The EUR USD finished sharply lower. Based on the recent range of 1.4480 to 1.5063, the Euro has retraced .618 to 1.4696. A successful test of this area could result in the start of a short-covering rally, but traders have to watch the momentum before trying to pick a bottom. The daily closing price reversal top at 1.5063 has been confirmed and the objective reached. A weekly reversal in still possible if the Euro finishes lower for the week on Friday. Based on the current set-up, there may be vicious retracement to the upside as bearish traders try to set up a secondary lower top.
During the recent sell-off, traders piled on the GBP USD with almost every currency gaining on the Sterling. This is most likely the main reason why the British Pound was relatively stronger than the other currency markets today. For example, as the Euro weakened, traders were forced to unwind Euro/Pound spreads. This gave the British Pound strength. It isn’t that the British Pound is perceived as stronger than the Dollar; it’s just that the spreads have to be adjusted. Once this situation is rectified, the GBP USD should weaken as money leaves higher yielding assets. Fundamentally, the U.K. economy remains weak as evidenced by the recent report showing a contraction in the economy during the Third Quarter. This weakness is causing speculation that the Bank of England will expand and extend its asset purchase program.
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Investors Flee Higher Risk Assets for Safety of U.
Posted - October 29 2009 : 00:02:26
