The Fusion Media Network:

Real-Time Quotes:

Home

Analysis

Fundamental Reports

Fundamental

Technical

Futures

Central Banks

Forex Brokers

Trading Tools

Crosses

The Dreaded “R” word

By:

iForex

2008-03-02

votes

View Comments (0)

Previous Analysis | Next Analysis

	Text Size
	Print
	Email
	Add a Comment

The Federal Reserve continued with its aggressive policy last week, lowering its enchmark overnight lending rate by an additional 0.5%, bringing it down to 3.75%. The question that remains is whether these cuts will prevent the U.S economy from going into recession?
According to Standard & Poor’s, as the credit crises deepens, losses from securities linked to sub-prime mortgages may exceed $256 billion dollars as world wide institutions, banks and credit unions write down the value of their holdings, wiping their losses. As mentioned in my last article, this situation will continue to put pressure on the recently felt credit crises, as restrictions on borrowing will severe, forcing a global slowdown. Coordination between the Fed and other central banks is being felt, as they are trying to do their utmost to prevent that situation, but recent data from the U.S doesn’t seem to be showing positive results, leading the economy towards the dreaded “R” word.
One has to remember that Wall Street defines a Recession as two consecutive declines of GDP growth.
Last week a wave of data was released showing exactly how the U.S is dealing with its current slowdown. Economic Growth rose by merely 0.6% last quarter while Unemployment jumped higher from last month’s measurement of 4.7% to 4.9%. Even though the result came out just under 5%, a level that is closely watched by the Fed, Non-farm payrolls published an appalling result of 17k, showing that the employment sector is being hurt by the current situation.
As the next Fed meeting is not at least for another month, investor’s eyes are going to be focused on inflation data over the next couple of weeks, as it could prevent the Fed from taking further aggressive action at its next meeting, possibly prolonging this economic slump which could lead to an additional lower GDP reading, next quarter.

Euro/USD - Third time Unlucky?
Over the last couple of trading sessions the Euro has been creeping up to its resistance level of $1.4950, a barrier that it has tried to break already twice in the past. As shown in previous reports, even the Euro-Zone cannot hide from a global slowdown, as numerous economies including Germany are starting to feel the pressure. One would expect that after two major rate cuts in the U.S and disappointing employment data, the Euro would be looking at the $1.4950 mark from within its rear view mirror. On Friday, the Euro crashed as manufacturing data showed strong results and global money flew into U.S long term bonds, decreasing their yields dramatically. According to the European bond market, the ECB has room for one rate cut, and if Trichet continues with his unsurprising speech, there won’t to be much data driving the Euro upward. This week will surely be the test for
this pair as Trichet will address the markets one more time with his monetary policy, either disappointing Data-Driven-Traders or giving the Euro the boost it needs to break problematic levels.
One should take into consideration that this pair could see some future range-trading, before it heads up for another run, if the markets are not pleased with the results.

GBP/USD
Similar to the Euro, the pound bounced off its psychological level of $2 last week, crashing on Friday as Employment data in the U.S hit the boards. The U.K has been experiencing turbulence for some time now, therefore any bad data from the U.S is automatically reflected in the pound out of fear that the U.K will continue to follow the U.S' deteriorating economy. Economists at the Central bank are predicting further rate cuts this year, which could be realized sooner than expected, especially when mortgage approvals fell to the lowest since at least December 1999.

Summary
Volatility will continue to remain high this week, creating excellent opportunities for day-traders.
Swing traders should monitor their portfolios accordingly, as two major decisions will surely take center stage, increasing the trading climate. In addition, one should monitor the charts to make sure that currencies aren’t starting to show range-trading patterns, patterns that are already seen on AUD, NZD and CAD.

Digg

Del.icio.us

Mixx it!

Reddit!

Wikio

Next Analysis:

Content Provided by:

iForex
iFOREX is an international group of Forex companies founded in 1996 by a group of bankers and Forex dealers. In 2004, with an existing wide client base numbering in the thousands, our multilingual internet-based trading platform was launched. Since then, iFOREX has expanded its client base to tens ...

Disclaimer:
You should not engage in speculative spot forex or CFD trading unless you understand the basic aspects of such trading and its risks – for example, how positions are opened and closed, how profits and losses are made and the extent of your exposure to risk and loss. Trading in spot Forex and CFDs is speculative and involves a high degree of risk. In particular, because it will be conducted using margin (which covers only a small percentage of the value of the foreign currency traded), price changes in spot Forex or CFD can result in significant losses. Therefore, trading in these contracts is appropriate only for persons who understand and are willing to assume the economic, legal and other risks involved in such transactions.

News

Quotes

Forex Analysis

Forex Brokers

Forex Software

Live Events

Charts

Education

Forex Forums

Languages

Risk Disclosure: Fusion Media will not accept any liability for loss or damage as a result of reliance on the information contained within this website including data, quotes, charts and buy/sell signals. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible. Currency trading on margin involves high risk, and is not suitable for all investors Before deciding to trade foreign exchange or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All stock prices, indexes, futures and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn’t bear any responsibility for any trading losses you might incur as a result of using this data.