EURO PROPPED UP BY COORDINATED CENTRAL BANK MOVE

Quote CNBC News: 'The world's major central banks made it easier Wednesday for banks to get dollars if they need them, a coordinated move to ease the strains on the global financial system. Stock markets rose sharply on the move.

The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan, and Switzerland are all taking part in the operation, which is designed to "enhance their capacity to provide liquidity support to the global financial system."

The ECB said in a statement the central banks were making it cheaper for banks to get U.S. dollar liquidity when they need it, starting next Monday. They are also taking steps to ensure banks can get ready money in any currency if market conditions warrant by establishing a temporary network of reciprocal swap lines.'

This coordinated liquidity enhancing move by central banks propped up the Euro and rallied stock markets, gold and oil. As this action may not have changed the overall sentiment it will be very important to monitor the markets during the coming days to find out how significant the price jumps are for the mid-term price direction.

THE RISE OF OIL

As our last post has stated, 'currencies remain range-bound'. Sentiment driven movements this morning have catapulted the Euro up again within its 1,30 to 1,40 band. The Euro/Swissie and Euro/Yen crosses at key support levels need to be watched. While the Swiss have successfully defended its 1,20 price limit set versus the Euro, a countertrend price movement was unable to break through any meaningful level. 1,25 needs to be broken and a test of 1,30 should happen in order to make the spike low in place a key reversal low.

Euro/Yen hovers around the critical 100 mark. As long as the Euro can hold the 100 level versus the Dollar we expect no immediate down move of the Euro versus the Yen. Chart sentiment, however, still remains weak.

The rise of oil during these economic times in Europe and the US makes it difficult to judge the overall outlook. It seems that the recent attempt to break 80 Dollars to the downside was a last try to establish lower prices. The likelihood of a year-end-oil-price above $100.00 is now quite high and will remain a shadow over economic recovery scenarios.

Let us watch the month-end price levels before attempting to establish a more mid-term view on future price movements.

Yours sincerely,
Gerhard Pilz

CREDIT CRISIS BACK IN FOCUS

As Athens and Rome show the world, politicians may not be able to solve the complicated credit crisis. Therefore a professional technocratic government shall work through the issues, confront citizens with unpopular decisions and help the political class to survive the disaster mostly caused by it.

Not enough that ever more European countries suffer from unsolved funding problems, now the US is back in focus. The Republicans and Democrats were unable so far to find any common ground, thus the financial and budgetary disaster continues to rattle Washington.

There are mixed views on how the disagreement may help or destroy the US economic outlook, however it is clear that the key western allies are looking at a very problematic future in the short-term.

As a result, currency movements remain range-bound, hit now and then by news which cause a frantic rise or fall. As neither the US nor Europe can present solid solutions for this global credit crisis, a rather negative economic outlook needs to be prolonged as states will hardly be able to stimulate economic activities due to their funding problems.

On top of all that the oil price continues hovering around $100.00 per barrel, a premium price for consumers already hard hit by current economic realities. Price movements of oil are often erratic, however it is forecast to remain at the higher end of this year's range right into December.

Yours sincerely,
Gerhard

WHAT EURO DIRECTION IS LIKELY IN THE NEAR FUTURE

Having seen wild ups and downs in the Euro within the past few weeks, the long term investor asks for the likely mid-term direction of the lead European currency. While it is incredible that the Euro was able to hold itself at the higher end of its 10 years range throughout this massive finance crisis, we still believe that this is just the result of a dismal US situation.

Money printing, however, may be necessary in the not too far distance. It is very unlikely that currently planned savings will bring back on track several European key economies. The savings plans can only lead to more hardship. Economic stimulus and employment programs will be needed to lead to an expansion of economic activities. This however can only be reached by adding liquidity to all markets.

I am sure, once Germany may experience an economic backdrop their hardline finance policies will suffer their first crack. Time will tell. However, this or other scenarios which the economic savings plans will cause, should ultimately lead to a drop of the Euro.

Although the Euro has recently slightly rallied against Yen and Swissie the outlook remains weak. Should US economic activities pick up speed during the course of the election process next year, the next major directional move of the Euro may be down. Nevertheless, we are still hovering near the key 1,40 mark, and 1,30 was solidely defended recently.

One has to remain cautious and follow market activities closely as the recent price swings can be deadly once you as a trader are caught on the wrong side of the move.

Good luck trading this week.
Yours sincerely,
Gerhard