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Central bankers comments are in control |
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Wednesday, 21 February 2007 |
- Central bankers comments are in control
- US Dollar set to strengthen after inflation data and minutes to FOMC meeting
No one in their right mind would object to bringing young British
servicemen and women home from the dangers of Iraq but everyone must be
questioning the potential for ulterior motives in the timing of the
announcement.
As for the markets, well explaining yesterday’s movements is like
listening to a pair of teenage girls on a bus as it’s all ‘he said and
then he said’ if you know what I mean. As mentioned in yesterday’s
report, the Bank of Japan started the day by raising their interest
rate and then saying that that any further moves would be gradual. Then
the Bank of England votes 7-2 to leave UK interest rates on hold and
said that they are still quite happy that UK inflation will decline and
that they won’t move again on rates until they have seen more evidence
of the effect of the January hike. And then US inflation came out and
the US Federal Reserve said it was still nervous about inflation and
the markets said, well we ought to be buying the USD then and they did.
And then we said ‘Time for bed’.
Now I may have simplified that a tad but the overall effect was much
as I describe with the Pound on the back foot, the US Dollar a tad
stronger and the Japanese Yen weaker. Today is lighter on the data
front with German economic growth numbers already announced (more of
that below) and Eurozone industrial orders and US initial jobless
claims due for release during the rest of the day. On that basis,
further Sterling weakness is still the most likely scenario but we in
the Halo Financial gang remain ever ready for any unexpected
excitement. Mind you, if gang membership is to be banned, we in the
Halo Financial gang might have to go underground from now on. I’ll
keep you posted on that.
The potential for market movement comes from the Eurozone today with
German gross domestic product growing at an impressive annualised rate
of 3.7 percent and the German Government’s budget deficit at its lowest
level in 7 years. All of that is good news for the Euro and as long as
Eurozone industrial orders grow more than the forecast 0.2 percent in
December, we should see some more substantial Euro strength in the
coming trading sessions. The European Central Bank meets today but this
is a non-policy meeting so no interest rate announcement is due but
tomorrow is expected to yield fairly positive French retail data and
encouraging German business sentiment indices from the well respected
IFO institute. Its an environment in which Euro strength is the most
likely outcome. That fits well with the chart view that having tested
the €1.48 support once, GBPEUR is highly likely to test it again in the
coming days.
Another central bank that was in the news yesterday was the Reserve
Bank of Australia with RBA governor, Glenn Stevens, stating that, with
the economy at full capacity, there was a stronger likelihood that
Australian interest rates would rise rather than fall. This kind of
pulled the rug from under those who thought that as soon as Japanese
interest rates rose, the amount of funds being borrowed in Japan and
invested in Australasia would dive. A 25 basis point hike in Australia
would counter the Japanese hike and will be back to status quo. Add a
rise in commodities and the scene is set for Aussie Dollar strength.
From a chartist perspective the GBPAUD exchange rate is also looking
for further falls with the momentum indicators (relative strength
indices) pointing downwards and retracement levels highlighting A$2.42
as a sensible target.
“Cynic” (noun): a blackguard whose faulty vision sees things as they are, not as they ought to be.
Ambrose Bierce
FX Research and Analysis undertaken by:
David Johnson - Halo Financial
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