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The ISK continues to fall out of bed as the market seems to be shunning all things Icelandic just now. The stock market is down over 20% in the first 6 weeks or so of trading this year, a tough hit over the head for anyone. With rumors on what banks are holding (CDO/subprime) still making the rounds it is tough to see investors jumping back into the market just yet. Interestingly enough though, many are still looking for the Sedlabanki to trim rates this year. Inflation was not exactly soft in January (5.8% CPI) and the wage index crept up a smidgen (8.6%). Chances are that the CB keeps rates unchanged on Thursday, but it will be interesting to see their take on the sliding currency as they may actually feel the need to raise rates in order to protect the ISK from a one way trade. Time to buy the ISK? Easy tiger! The risk is clear to push through 100 for 102 and higher, but the ISK has found bottom fishing buyers at this area before. Use a turn below 97.30/00 as a clue for 95 probes, a turn below the latter leaving 90 and lower to play for. The market has been ‘one way’ here for a while though and it may be tough for the ISK to find friends in a tight credit/risk averse environment. But… this close to 100 on the EUR, hmm… Against the USD the turn above 64 triggered stops and this level has not been regained. The 69.65/70 zone is at risk, with 80 open on a break. Normally favoring this, but the jump away from 66 has been sharp. For choice, use a turn below 67.30 as the trigger for 66, then 64, the latter the key for 60/lower again.

Yesterday’s price-action on the euro was rather uncertain, lacking momentum to the upside, as it could not rise above 1.4577, and this latter represents a major resistance, because it stands at the 61.9 pct fibonacci retracement level of the last downleg in the euro’s fall to 1.4438 last week… however, we do keep our euro-bullish sentiment valid and we still expect the euro to gain momentum and try to test higher levels of 1.4635 in the next 48 hours, on its way to 1.4665/95 in the following sessions… but do keep in mind that the expectations for the coming weeks are for a wide range-trading (1.4960/1.4360) due to the prevailing uncertainty in the currency markets… technically, we consider the rally from 1.4438 as a correction of the last 10-days’ fall from 1.4952 to 1.4438; and this correction may last several days with an ideal objective set at the 1.4695/1.4750 zone… so, we expect the euro’s rally to continue unless an intraday fall below 1.4500 occurs, which may delay the upmove, and possibly jeopardize it (if an hourly close below 1.4438 is registered)… a break below 1.4438 will call for a retest of 1.4365/05, with a potential for a slide to 1.4255/1.4205 later on… the long-term trend will remain euro-bullish unless a daily close below 1.4365 is seen.. take care and have a nice and a profitable day