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Euro Dollar Fundamentals – 25th February 2009

Well – strange how such a small word as ‘if’ can have such a huge impact on the markets! It never ceases to amaze me how the markets react to statements from people such as Bernanke, but there we are – I did warn you yesterday that this man has the power to move the markets and we certainly saw it yesterday with big falls in both spot gold and spot silver, as the equities markets reacted positively to the news and rebounded higher during the trading session. The reaction on the euro dollar was the reverse of what one would expect as a positive view from the Fed would normally create dollar strength, not dollar weakness, particularly when combined with all the other ‘good news’ stories of Clinton’s visit to China and the rousing speech from President Obhama. The euro dollar pair is in a very volatile and dangerous range at the moment, moving in a very random way, and in common with many other currency pairs at the moment, they seem to be trading independently of events and correlation to other pairs, making trading almost impossible, and in many ways a complete lottery.

Today sees yet another speech from Bernanke, this time  testifying on the semi-annual monetary policy report before the House Financial Services Committee, in Washington DC. As with yesterdays meeting the session is split into two parts – first he reads a prepared statement, a text version of which is made available on the Fed’s website at the start, followed by the  committee holding a question and answer session. Since the questions are not known beforehand they can make for some unscripted moments that lead to heavy market volatility. After yesterday I hesitate to suggest which way the market will move based on any words he may or may not use!!  This will no doubt overshadow the Existing Home Sales figures which are due out at the same time, but my advice holds – I would look elsewhere for trading opportunities and leave the euro to dollar until some stability returns to the pair.