The U.S Dollar Index is bouncing back from low 78s and at the moment there seems no hurdle then in its path to stop it from breaking over 79.6 which shall give rise to a move upwards to 81s. Unlike a few weeks back when even a finger snap would send the U.S Dollar and the Index hurling down now things are very different and it seems for now that this [new] development of pro U.S Dollar is going to stay for a while longer! When a crisis like situation erupts then [Safe Haven] is U.S Dollar and Yen however, today we are observing Gold to be in the same league but we’d get to Gold in a little while.

Euro has dropped significantly and the blame doesn’t entirely go to U.S Dollar strength but material weakness in Euro itself. Mr. Cowen the Prime Minister of Ireland is now facing very real problems as his coalition government has now lost the support of Green Party which means Mr. Cowen would not have to call for elections thus further complicating the already complicated situation of Ireland. Moody’s the credit rating showed absolutely no mercy as it was amongst the First one to warn Ireland to expect multi notches downgrade!

This then is material weakness of Euro enough to push it beyond the recent low of 1.3444s however, we do not expect Euro to simply leave the arena and let U.S Dollar take the victory. At 1.344s we find support, not significant that it would cause a [reversal] but enough that Euro would pause and take a breather to entice the “speculators” to get on the [Long] bandwagon. We see Euro breaking the support and pushing lower to 1.3000s flat and this would be made easy as at first sign of 1.3444s break the Longs would run to liquidate their position becoming in essence the fuel to carry out this move. Be warned then we say as the road ahead for Euro lies full of perils.

Moving on to Cable, the situation with it hasn’t improved much since yesterday as we wrote in our article [Why was Euro’s rally short lived? And other pairs] that “Cable is somewhat oversold at 1.595s but an extended sideways trend could do more damage as this would increase the probability of Cable falling sharply.” Cable then has done precisely that since yesterday being stuck in a very narrow band it now seems waiting to give a downside breakout and to us the odds of that break taking place today below 1.5900s are plenty high. UK being the next door neighbor to Ireland, it then makes it [that] much more difficult to escape the weakness of Euro as the money from other currencies flows out towards the green back. 1.585s then lie in very short term for GBP.

By Bari Baig

http://www.marketprojection.net

© 2010 Copyright Bari Baig - All Rights Reserved
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