Market OverView

Written by Research | 22 February 2010

Market Sentiments

A lot of investors and traders in the market are confused as to the direction of the market after the FED raised its discount rate. Although, most investors have reacted to shifting their stock and fixed income investments to the US Dollar as a flight to quality.

These has always been the theme for the investors. Carry trades has maintained its levels as the markets volatility index has raised and slowed down after the FED's decision. The deficit and debt problem on the other side of the globe in Europe have led too much speculation of the Euro's direction heading lower. As for the British Pound's lawmakers decision not to join the ERM then have proven them to be on the right side of the decision. However, the the GBP/USD will never be an isolated case as it would still be an unofficial part of the European monetary system in relation with the US dollar. Remember, when Jon Majors walked out of the ERM that led the GBP/USD collapsing at the very time when they decided not to join. We were one of the very few who survived and still came out with something in our trades by just using the Reuters dealing system communicating to our dealers at the interbank market.

And as far as the overall economic indicators and reports for the US economy would still hang-over investors minds that the recovery may be on the way but still have not realized that the US Dollar has indeed made its pivotal and turning point since the beginning of the year. With the USDX touching a high at 81.35 basis pts. time and again our Market View and analysis has stood firm from its 2nd lowest point at 74.21and never looked back thereafter. The current ladder-like formation was envisioned as a mirror imaged from the USD downtrend and have proven to be true on the way up. As new probable highs will be establish and correction adjustments will be made on a technical basis as it makes room to move out of its technically overought areas that will indicate a selling pressure.

These also goes the same with the rest of the majors from the EUR/USD, GBP/USD and the rest of the cross rates. But be cautious of the traders outlook as for the USD/JPY which most analyst have claimed to be favorable for a long position since it has been lagging behind the USD/CHF. The correlationship of these two major pairs are not moving in the same direction in most cases and there are days where the lead currency that moves more with the USD is the USD/CHF and not the USD/JPY. We remain favorable for the EUR/GBP still more than any other cross pairs. It is pretty clear in our market view nad youtube video dated the 16th of February althoguh, thoses trades were done and executed on the 15th of February during and after the a couple of days.

Exceptional cases are attributed to the role of the Swiss National Bank and the BOJ stance of not intervening in the FX market. The irony of the analysis that some may find an unorthodox method is the fact that most economic reports have been gradually shifting from a negative to positive numbers that leads the market mixed sentiments. However, governments stand to support its stand for the recovery will always find ways and means to counter any negative reports by coming out either with its own news report that will as a counter act policy through a political stand point that would overshadow the negative report. However, the FED's response was totally unexpected though very timely. Not to mention the creation of the Committee to reduce the deficit of the US by as much as 4% from its current levels.