By: Action Forex
The forex markets are pretty steady in the last day of 2010. Euro got a lift on short covering in crosses as well as by comments from German Chancellor Merkel. Merkel said in an advance text of new year speech to the nation that Euro is far more than just a "currency", but the "foundation" of German economy. She urged that "we must strengthen the euro" as "Europe is in the midst of a great test." The common currency is seen noticeably higher against Swiss Franc and Australian dollar. Short covering in these two deeply oversold crosses helped lift Euro higher against dollar and yen and extended EUR/GBP's rebound.
IMF chief economist Olivier Blanchard said that markets' worry of massive European bailouts appears to be overblown and said the bailout component can be "quite limited". Though, he urged more transparency, including details about clues of sharing the burden between EU, national governments and creditors and said that's the only way to boost confidence. Meanwhile, he also predicts a "two-speed" economic recovery in 2011 and beyond, "low in advanced countries, fast in emerging-market countries."
Center for Economics and Business Research CEO Douglas McWilliams warned that "if the euro doesn't break up, this could be the year when it weakens substantially toward parity with the dollar." Douglas said that the reason for breakup would be " failure of most of the countries to take the tough medicine necessary to make their economies competitive over the longer term." He reinstated what's said in a previous CEBR report that there is only a one-in-five chance for Euro to survive in its current form for ten years.
Dollar index's break of 79.55 support indicates that rebound from 78.83 is completed at 80.82 and fall from 81.44 is possibly resuming. We'd anticipate the index to be soft from now till at least the first few days of 2011 and further decline should be seen through 78.83 support to test key near term support level at 77.97.