The day of reckoning has finally arrived with the
ECB delivering their interest rate decision and the US showing us how
well/badly their employment scene is shaping up with the release of Non-Farm
Payroll data before tomorrow's Independence Day break.
Yesterday saw a combination of events that led to
EUR/USD climbing to a 2 1/2 month high of 1.5892. Ahead of
today's NFP data, a report released yersterday showed U.S. private employers cut
the most jobs in nearly six years and U.S. equities sank into bear market
territory.
Such news reinforced investors' and traders' doubts about whether the Federal
Reserve would raise interest rates very soon despite inflationary pressures from
surging oil prices, and this dragged the dollar lower. Oil hit new record highs
of $145 per barrel.
The Dow Jones Industrial Average index sank into a bear market mode, closing
more than 20 % below its October peak, while the benchmark S&P 500 wiped its
feet on the brink of entering into bear territory .
With the ECB widely expected to raise rates today by 0.25% to 4.25%, the
focus will be on whether ECB President Trichet drops any hints about the
possibility of further monetary tightening. A failure to do so or any comment of
a more dovish nature will curb the Euro rally, but with the ECB press conference
going out at the same time as the US employment data is released it promises to
be an extremely volatile trading period.
The Pound has retreated this week since a perky 2 hour period on Tuesday
morning when a substantial amount of GBP was bought largely for M&A purposes
trigerring stop losses on short sterling positions. GBP/USD climbed to the lofty
heights of 2.00 before falling back sharply below 1.9900. The story is similar
fairly much across the board, supporting my continual call to sell
Sterling rallies.
EUR/GBP has continued to move higher to 0.7987 from a low on Tuesday below
0.7880 (GBP/EUR 1.2690 down to 1.2520 ) on this EURO surge and will now be at
the behest of what goes on from 12.45 today.
We should also expect some volatility from the release of the Halifax UK
House Price index and the Purchasing Managers Index this morning even though it
shouldn't spring too many surprises, to this writer at least. We also have
Eurozone Retail Sales data out at 10.00 which will be of key consideration to
the ECB's rate setters and may have an impact beforehand.
Brace yourselves. It's going to be a lively ride ahead.............
Mike
Mike Paterson is a former senior interbank trader with UBS and Credit Suisse and has been involved in the FX market for over 28 years. He now runs his own consultancy advising private and corporate clients on best execution of currency requirements. Mike also presents at a wide range of events and runs currency workshops for businesses to better understand the vagaries of the FX marketplace.
For further information please contact him at :
MSP Foreign Exchange Services
Office: + 44 ( 0 ) 1732 700383
Mob: + 44 ( 0 ) 7887 581696
Email: mspfx@tiscali.co.uk
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