E.C.B can send emerging markets reeling down in this week
August 30, 2008
By N. Prasad

Euro and u.s dollar continued there wild swing making every financial market commodities, stock markets, prone to uncertainty There were certain major economic data that were released during week across globe throwing light on the directional turn economies were taking.

First of all we had u.s durable goods order showing surprise by raising 1.30% against consensus of 0.3%followed by Aug. British home Prices post biggest annual drops since 1990. German consumer confidence was at lowest and u.s gdp was higher at 3.3% against consensus of 2.7% Euro-zone Aug. consumer inflation up 3.8% vs. 4% July all these were supportive for u.s dollar which was trying to react down without confident investors to back at higher levels but bounced after each of these release and finally managed to close at highest closing level since Jan 2008.

As soon as smell of u.s dollar strengthening started funds that were parked all over emerging markets started flowing towards u.s dollar from last month itself simply for one reason they were subscribed by there investors in u.s dollar form and will have to redeemed in same u.s dollar from.hense it was not worth to keep in other currency mode despite there growth are good returns in emerging markets it would be nullified at repatriation to u.s dollar on later date.

Now with euro zone struck with highest inflation, deflating growth E.C.B has role cut out on Wednesday to make announcement of there rate structure they are in affix but they may pause without any decision later may follow a hawkish statement about inflation and pledge to support the fuel economy for steady growth.

The reason that can be attributed to present situation is in any zone when barter or there currency appreciates significantly there imports will become cheap at the same time there exports will become uncompetitive to the currency zone that's depreciating as soon as imports increase due to there cheap prices local industry suffers from non viability against imported goods so double hit reduced domestic production decreased exports raising imports start taking toll over period of time case study you can see the data shift that's happening in good indicators from u.s and fall in euro zones growth from last 6 month currency movement where every one was happy with appreciating euro against u.s dollar and now realizing what's happened .even in India same scenario is witnessed so again on the reverse side too extremities can trigger as market panics do come from acting behind curve from all learned.

This may lead to collapse of euro to new levels of 1.4240 simultaneously dollar index which is technically on intermediate uptrend and even has managed to close on higher end at 77.36 highest closing in about 8 months and looks set to conquer 79 level in short term


This can lead smart rally in dowjones index till 11890 to 11970 levels but the other markets like India, Dubai, even European markets may not take cue from this rally as funds preferring to invest in u.s dollar based market with intention of dual gains in single invest men form appreciating currency as wellapreciating markets complimenting each other this was seen for last 2 years in emerging markets.

Commodities can also cough a bit in this week as oil poised to loose firmly held ground after hurricane Gustavo and Hanna risk premium reduces either after the strike or there failure I feel even if they hit production demand is not higher side to trigger great spikes they can only find speculators who have built in for event unload getting disappointedly are if they fail without hitting any oil platforms even then speculators will un wind in hurry, can break 112$ and test supports at 108$ and 102$ Gold, silver unwind till there panic lows at 775$ and 12.2$ respectively to complete consolidation as appeal reduces for safe heaven instruments during dollar carnival.

The coming week can be very crucial and may see many markets across globe to be sold off even technical on charts are also indicating similar patterns being formed.