Euro and Pound fall back after promising start

01-19-2009 09:30

Yesterday (Monday) the US markets were closed because of a national holiday. Nevertheless the pound and the euro rose during the Asian session but when the European markets opened the growth disappeared. The first US bank failure in 2009 increased the pressure on market participants and this will possibly result in risk aversion.

EUR/ USD started with a difference of more than 80 points on the upside but the move struggled at 1.3385. A significant break of that value could result in a further increase up to 1.35. Currently the European currency situation seems less sunny and weak trading conditions could result in more stability. EUR/ USD valued underneath 1.33 and a significant break of 1.3250 may lead to a 1.32 level.

Things may slow even further due to a lack of important economic events and because the US markets stayed closed Monday. The pressure on the pound continuous to increase as the Royal Bank of Scotland stated a 28 million pounds loss; a UK record. Also Darling's current plan to prevent that UK banks fail, investing an extra 149 billion pounds to the system, increased uncertainty and stimulated the decrease of the pound even more.

This week could be critical for the direction of the dollar amid the inauguration of President Barack Obama tomorrow, despite the lack of major US economic releases this week. Analysts believe that Obama, after completing his induction, could enjoy a increase in the markets while traders could consider the new President as a symbol for an optimistic economic future. On the other hand, investors may return to risk aversion and find consolidation in the dollar as banks show losses nearly every day and economic figures weaken quickly, in combination with the new plans of Ben Bernanke which should stimulate the market but so fare aren’t successful.

This week may be interesting for all the markets, especially concerning the direction of the pound as important economic data will be published almost every day and due to the minutes of the previous monetary policy decision.

It will be interesting to see how the bank will manage the consequences of the deflation since a zero policy rate is only a matter of time. The economic future of the pound is not very optimistic and another sell off in the GBP/ USD may occur in the next weeks.