19 March 2008 - 21:29market commentary 3/19/08

The Fed decided to cut by less than the 1% the market decided on Friday and Monday they would cut and the dollar predictable rallied. The market over reacted in typical fashion first with a sky is falling mentality and then with a knee jerk reaction to the Federal Reserve. The stock market backed off intialy after the less than expected cut as I said it would and bounced off of Fibonacci support at 12114 manifested as 12100. Of course it then rallied until reality kicked back in and it sold off again today. Gold fell far below $1000 this weak as oil also loses momentum and weak demand for oil is evident. Still with the summer driving season just around the corner I would be surprised to see black gold fall and stay below $100 for long. Unless the dollar really rallies inexplicably there is no reason to believe that gold will not breach $1000 again soon. Fundamentally the dollar is weak and the over sold signals on tech traders charts will not be enough to turn it around. What we are seeing here in the dollar is a healthy correction, nothing more. Tomorrow morning there will be some important data released in Germany, with PPI being released. I expect the higher costs of energy to be muted by the rise of the euro in relation to the dollar so the increase should not be any more than the .3% forecast and quite possibly less after last month’s big increase. Bigger still will be the UK retail sales at
5:30 and if they come out weak again like the last two months we could see GBP/USD at 1.9650 again tomorrow. Cable has really taken a pounding this week and it really all started at the end of the European session on Friday. A client was asking me what I thought about GBP/USD at the time and I told him it was going down and indeed it has. Although the dollar is weak I see no reason for a $2 pound since the UK is in much the same boat as the U.S.