Latest news on European Morning Update 20th May 2008
| Dollar mixed ahead of the German ZEW News from Australia: The RBA minutes for the May 9th meeting highlighted the biggest concern as inflation and of course this generated discussion over whether rates should be raised. It was noted that domestic demand has declined quite solidly but outweighing any argument on easing was the need to reign in the high level of inflation. Obviously we all know that they opted for an unchanged policy but what is clear is that they would consider hiking rates if inflation continues to rise. As with other central bank the RBA is forecasting inflation to remain at “elevated levels” but slowly easing over the next 2 years to below 3%. Equally, as with other central banks there doesn’t appear to be any fear that inflation will continue rising. This is of course the global Achilles heel…
Bank of Japan rate decision 0.5% 0.5% No change from the BOJ today which is very clearly not a surprise. Nor is the statement that they want more time to assess whether the U.S. economy is going to recover or whether it will go into recession. Discussion was also made of whether Japanese businesses can survive the sharp rise in raw materials costs which is feeding through to retail prices and squeezing non-energy and food related shopping. Certainly the Tertiary Industry Index failed to live up to forecasts and this will have an impact on next week’s All Industry Activity Index.
March April May
The concerning point about this is that if the Euro dipped much further than it did last night I’d begin to bring that weekly spike top scenario described last week more to the front of my mind. Now that would be bullish, considerably so. However, I still prefer for that to prove itself as I do still find the prospect of a lower Cable at this point quite difficult to take. Therefore I remain with the same bias as yesterday- that we should see erratic losses in the Dollar and the pullback seen yesterday does fit into that scenario. In fact, I actually prefer a day of tight consolidation today with the market really appearing to be quite confused as to what to do. The only risk to this that crosses my mind is the German/Euro-zone ZEW release tonight. If this comes in significantly away form consensus forecast there is obviously the risk of a sharper knee-jerk reaction. Even then we have tomorrow’s FOMC to navigate as well so unless there is some other catalyst to break ranges the preference does seem to retain the status quo for now. One area I am beginning to get concerned is in Dollar-Yen. I still remain bearish in Euro-Yen and the next leg lower does seem imminent. There is a risk of a sideways consolidation here too which could keep tight ranges today but any loss of 161.25-54 does look bearish and it would seem more likely at this point that Dollar-Yen will take the strain. The alternative would actually be for the Euro to shoot lower – and that would bring me back to the spike high scenario… So overall today, unless there is something that breaks the status quo I’ll be more inclined to trade ranges.
USDJPY EURUSD USDCHF GBPUSD Spt: 103.51-80 1.5485-00 1.0447-80 1.9452-90 See Also
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