First thing in the morning I generally try and sit back and connect the dots from the prior session. Today, I must admit I’m struggling to find a thread to weave together anything approaching a coherent theme.
Seems as though sterling is undergoing a massive short squeeze as traders continually try and pick tops for the pound. Any fundamental analysis would suggest that the pound faces serious headwinds ahead as the UK struggles with massive government debts, banking problems and high unemployment. The fundamentals are nearly identical to those faced in the US, but sterling is not much of a reserve currency these days so the risks of the pound being dumped en masse by a less-than benevolent creditor just don’t exist as they do in the US.
The dollar seems to have stabilized on a broader scale as the Peoples Bank of China warns economic recovery is uncertain> The reflation trade coupled with the idea that emerging markets will lead the global economy out of recession have gone a long way in recent sessions so a dose of reality seems well-reasoned.
Traders will look to chain store sales anecdotes as well as existing homes sales for evidence of a bottom in the US economy. Home sales are expected to rise to a 4.66 mln annual rate, about a 2% rise if my math is correct.
EUR/USD probed below 1.3900 in early US trade. Tuesday’s 1.3855 low is key support.