Greenback likely to rally further

Business 24-7
Monday, Sept 1, 2008

Over the course of the previous week, market witnessed the strange scenario of dollar gaining strength at the expense of other currencies especially euro and sterling pound. August saw US dollar index's (index of a basket of currencies against the US dollar) strongest monthly performance since October 1992.

The index was trading at 77.24 at the time of writing this review, bringing its gain for the month to 5.6 per cent at current prices. The trend is likely to gain momentum as the market steps in to the new "Central Bank" week.

The European Central Bank (ECB) and the Bank of England (BoE) are expected to announce their decision on interest rates during the week. Both these banks are expected to leave their rates steady at 4.25 per cent and five per cent respectively.

At the press conference following this decision we do not expect any surprises from both these Central Banks except few soothing comments to stabilise the financial markets, expectations of moderate inflation, and continued risk to economic growth. However, traders should keep a close watch on the ECB press conference to learn if there is any similarity to the latest views of ECB Executive Board member Axel Weber's comments that "talk about lower interest rates in the Euro-zone is premature".

Technically, much would depend upon whether euro is able to hold above the key support at $1.46, beyond which the slide could be really steep.

Given the economic condition of the eurozone, it is unlikely that only "few comments" would be able to sustain euro against the surging dollar.

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