Despite the lack of volume last week, active traders managed to lock in profits as additional bad news hit headlines, showing analysts that recent dollar strength could possibly be over. The major currency-mover of the week was the Euro, as traders converted their money back from Euro counterparts due to expectations that the European economy will hold its ground despite global turmoil. The Pound managed to creep higher after its huge losses, closing the week around its $2.0 psychological level. One has to remember that even though the pound closed the week higher, it doesn’t mean that the situation is improving, but only that the U.S has not yet recovered from its dire
situation. Like the U.S, England is still suffering from the recent global financial crisis and housing slump. Even though the BOE has already taken steps towards fighting economic contraction (a monetary reduction of 0.25%), similar to the steps taken in the U.S, to try to control the housing situation , economic stability and positive sentiment takes time and is not a situation that can be changed from one day to the next. During the month of December, housing prices in England lost an additional 0.5% of their value, only contributing to the economic slump. To date, the Pound remains at crossroads with numerous factors pointing to different future monetary possibilities:
Rate cut pros:
1) Taking a look at the bond market one can see that the consumption of U.K’s Gilts is hinting towards further monetary action.
2) Additional bad news from the housing sector.
3) A continuous financial crisis.
4) Technical major trend lines have been broken.
Rate cut cons:
1) Inflation remains at tolerate levels of 2.1%.
2) Inflation remains counterbalanced by economic growth.
3) Yearly unemployment rate remains at 2.5%.
4) Technical major trend lines are currently being tested. Once the holiday season comes to an end, trading volume will pick up, determining trends.
The indecisiveness in this pair (GBP/USD) is convincing traders to put their money into more stable currencies like the Euro or Gold. This can be seen through Gold charts or the current EUR/GBP price, closing the week at €0.7384. Traders following my previous reports regarding Gold prices should alter stop-losses to protect recent gains.
Summary
Even though certain currency prices seem to be invulnerable, holding onto their strength, those trends are based on low volume and could possibly change in the New Year. Traders who think that they have missed trends should not worry as new trends often present second chances to open positions.
I would like to take this opportunity to wish all of my readers a happy new year. I hope that these articles contribute to your understanding of the markets and helping you form better trading strategies.
Source : Forexpros.com
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