Dollar Struggles to Remain Strong!
The dollar has started to weaken against the euro since early Asian session, with the pair finally breaking important 1.4130 at the time of writing and printing yet another weekly high at 1.4160. The dollar has been weak mainly due to the risk appetite which has been seen all across the markets and especially in commodities, as oil has made another multi week high above $73. Stocks have been trading mixed however, with Europe down slightly so far, as UK‘s GDP printed a really negative number since the late 50's, indicating that the economy has shrunk with a fast pace and the damage is seen in most of the country's sectors.
The EUR/USD is trading on the upside once again and the dollar's strength we witnessed yesterday did not manage to last long. Although the risk aversion creeps back, the dollar has managed to keep key levels against the pound and the euro, and for now as long as EUR/USD traders keep above 1.40 and GBP/USD above 1.65, there is room for further upside. Next level to watch for the euro is 1.4160 and a breakout may put 1.4230 back in the picture.
The economic calendar had few releases out of Euro zone and UK which came out mixed, as GDP reached multi year lows and house prices raised for the second month, giving out some kind of hope that a housing bottom may be nearing. The fact that the GDP was low made the pound dive against the buck and the pair found a top at 1.6750 for now. However, traders are aware that the situation in the UK was dismal and therefore the pound has managed to take back some of its loses. Also later on we have Chicago PMI out of US and consumer confidence which are both expected to print better numbers, giving the stocks more reasons to rise and make wonders for trader's confidence.
The oil has managed to stage a rally, due to the weaker dollar and also the geopolitical unrest in Nigeria which always affects the commodity price. The Nigerian attacks make investors nervous and the oil is bought as an aftermath. For now, as long as oil trades above $70 another move further up towards $75 looks like the possible target. The coming days will tell us how the commodities react to several key data out of US.
It is clear that investors are getting more positive by the day about the state of the economy, however, beware of the incoming news we get especially out of the employment sector, as although we see improved numbers all round, we are still far away from recovery. The payroll data has been negative for several months now and over the last months we seen extremely bad results on the -700.000 mark. So, the main point I try to make is that everyone wants to feel that the worse is behind us and things are back to normal, however sometimes wishful thinking is playing tricks on us, and as we are getting ready to say goodbye recession the risk aversion comes back to remind us that conditions are fragile and the recovery is not underway.
One thing is for sure, when markets are ready for a comeback and conditions improve officially, traders won't be on board for the move up, as too many fake rallies will make them stay in the sidelines, and when the real thing unfolds, it will be like the boy who cried wolf... too little too late...
