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As anticipated and forecasted, the BOE cut interest rates by 25bp to 5.25% and ECB left rates unchanged at 4%.
GBP:
At the moment, the Bank of England is more concerned that slowing growth will bring inflation below target and suggested that more rate cuts may loom on the horizon as long as economic data points to deteriorating conditions following the lead of the American counterparts. Similarly to the USD, the pound is heading towards a period of slowing growth and its time to short it.
EUR:
Even though interest rates remained unchanged, ECB President Jean-Claude Trichet appeared to soften his previous hawkish stance on rates, noting that risks to growth in the euro zone were on the rise. Analysts increasingly believe the ECB will have to cut rates later this year despite rising inflation. Trichet stressed multiple times that the risk to growth is to downside and uncertainty about market turmoil is usually high which triggered the massive sell-off of the EUR/USD. Look for a period of moderate rise in the EUR/USD but mainly trading within a narrow band pending further economic news but for the short-term, its good to go short as the momentum is favouring the down trend.
Trading:
At the moment, there looks to be a relatively good amount of trading opportunities with the majority of the event driven news out of the way. At the moment, I am looking at a short on the EUR/JPY on the 1-hour downtrend and since its a Friday, 1-hr is perfect for an intraday trade with all the profit-taking that goes on during the mid-session of the NY open.
Another trading setup is the EUR/GBP (my fav. pair) on the Daily charts forming a flag formation again and a break to the upside past the .7500 region would signal another buy opprtunity possibiy to at least the 0.7600 region.
The Institute for Supply Management’s (ISM) non-manufacturing index, released Tuesday, plummeted to 41.9 from 54.4 in December as analysts fore casted a figure of 53. It was the steepest drop since the index was launched and the lowest reading since the aftermath of the Sept. 11, 2001, terrorist attack. A reading of less than 50 indicates a contraction of service activity, which accounts for about three quarters of the U.S. economy. The sharp decline in the ISM index is significant because it suggests a recession could be worse than the relatively mild one experienced in 2001. A remarkable 14 of 18 sectors ranging from insurers, restaurants, hospitals reported to the ISM stating activity shrank in January.
As a result, fed fund futures are pricing in a 74% chance of another 50bp cut next month.
…..
Not much going on again on the trading aspect and my previous sole lot on the EUR/GBP was exited early due to the rising strength in the GBP the last couple of days. The exit point was @ 0.7460 which netted a profit +14 pips and the entire trade netted a total of +59 pips.
The opportunity to re-enter may very well occur very shortly however due to the event risks of interest rate statements from both parties; any entry should be delayed until Thursday.
As predicted, the Board decided to increase the cash rate by 25 basis points to 7.0 per cent yesterday, the highest since 1996, and was spot on with analysts’ forecasts. What was more interesting was what was said afterwards by the Reserve Bank of Australia as new information points to significant inflation pressures. CPI inflation on a year-ended basis picked up to 3 per cent in the December quarter, with underlying measures around 3½ per cent. Indicators of demand remained strong through the second half of 2007, and reports of high capacity usage and shortages of suitable labour persist. In the short term, inflation is likely to remain relatively high and will probably rise further in year-ended terms, though the Bank expects it to moderate somewhat next year. Thus for now, the Aussie remains one of the hottest commodity currency due to current and future anticipated interest rate spreads.
Not much is going on with regards to the trading front as the majority of currencies are sideways trending simply due to the upcoming interest rate decisions from the BOE and ECB. Furthermore, investors also seem hesitant to take bets on major currencies with most Asian financial markets, including Hong Kong, closed on Thursday and Friday for the upcoming Lunar Chinese New Year celebrations.
The BOE is expected to lower its rate further while the ECB rate will likely stay unchanged at 4 percent and all eyes and ears will be glued to the ECB’s subsequent statements regarding any future policy changes and its intended directions as some are betting that the rates will go down by the end of this year, while others expect the ECB to keep the rate on hold for 2008 and start increasing in early 2009. While there is pressure on the ECB to follow its US and UK peers in easing monetary policy, the high inflation in the Euro Zone is preventing it from doing so.
Proceed with caution as the market is trading within a narrow range awaiting for a clear direction as there is also tons of vital U.S. economic data coming in on the horizon on Tuesday and Thursday.
……
Regarding the on-going long-term trade on the Daily chart for EUR/GBP, I’ve decided to close one portion of my lot for a gain of +45 pips simply due to the uncertainty in the market regarding the ECB’s future direction and subsequent profit taking the past two days. The other position is running risk-free with position already set to stop loss and barring any good news, I will look to re-enter again possibly in the 0.7550 area and shooting for the stars with the previous swing high and the full extension of the previous swing to the upside. But for now, I have decided to bank some profit for the month and considering the EUR/GBP’s pip value is twice that of a USD-based currency, it isn’t too shabby at all.
All right, not much went on last week due to the influx of important news stemming solely from the United States stipulating that further rate cuts are forthcoming with many predicting cuts to 1.00% a realistic probability. Job growth as per the Non-Farm Payrolls numbers released on Friday declined dramatically from the already lowly December figures as the biggest job losses were seen in the manufacturing , financial and business services. If February payrolls decline even further, look for the Federal Reserve to cut another 50bp at the March meeting.
The spotlight for this week resides in the interest rate numbers from the AUD, EUR and GBP. Look for rate hikes coming from the Reserve Bank of Australia on Monday at a 25 bp increase to combat inflation as the RBA’s weighted-median index of inflation jumped 1.1% in Q4. Meanwhile the Bank of England takes the opposite view on Thursday as the latest PMI Manufacturing data missed badly signaling UK monetary authorities to follow their US counterparts by initiating a sustained policy of easing via rate cuts. Meanwhile the ECB continues to maintain maintain its rather hawkish posture and will be adamant in keeping rates at their current 4.0% due in part to their industrial sector remaining in an expansionary mode.
Meanwhile according to PFX Global’s Total Fundamental Strength Analysis chart, the pattern is exactly the same as last week with the the New Zealand and Aussie currencies continuing to be the most dominant pair with the Swiss and Yen to remain the weakest.
With respect to trading, the long-term EUR/GBP trade I have going on has reached the +75 pips mark and is 40 pips away from my first target which was the previous swing high and stop loss has been set to break-even.
The only current setup I see that is most likely to take place in the next few hours is the GBP/CHF on the 1-hr time frame and the fundamentals are in line with the weakening of the GBP as seen late last week. Entry around the 2.1380 area seems like an ideal area given that it is the current low of the day, we’ll see how this pans out.
Further to my last post wherein I entered the GBP/NZD trade, I revised my exit point to 2.4755 seeing that its Friday and profit taking would most likely occur after noon (EST timezone) and the Average Daily Range was literally blown out by a good 200 pips as the usual range is 377 wherein we experienced 578 today. Thus, it is highly unlikely that my original target of 2.4715 will be met within 4 hours (although its currently at 2.4740 w/lots of momentum on its side) and carrying the position over the weekend is rather risky and i’m not keen on letting all that profit disappear given that this pair is a high flyer.
Anyhow, it is a great start to the month with +288 pips in the bank.
(1 votes, average: 4 out of 5)
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