The Euro broke above 1.3000 on an increase in Euro-zone inflation reaching as high as 1.3035. Indeed, consumer prices in the region rose to 1.2% from 1.1% which will ease deflation concerns and could lead to the ECB keeping interest rates on hold.
Talking Points
• Japanese Yen: found Resistance at 98.50
• Pound: Brown Pledges Action Following G-20
• Euro: CPI Rises As Energy Price Stabilize
• US Dollar: Industrial Production On Tap
Euro Rally’s On Increase in Inflation, Will ECB End Current Easing Policy?
The Euro broke above 1.3000 on an increase in Euro-zone inflation reaching as high as 1.3035. Indeed, consumer prices in the region rose to 1.2% from 1.1% which will ease deflation concerns and could lead to the ECB keeping interest rates on hold. The Single currency was already trending higher on increasing risk appetite after the G-20 meeting showed that finance ministers and central bank leaders were willing to work together and focus on dealing with the toxic assets on banks’ balance sheets. However, a 0.3% decline in 4Q employment is further evidence that he recession may deepen before we see a rebound in growth.
The uptick in inflation could be a sustaining supportive factor for the Euro as the ECB prime mandate is price stability. The central bank has been reluctant to cut interest rates as aggressive as other developed nations due to fear of future inflationary pressures. The core reading accelerating to 1.7% from 1.6% on an annualized basis will garner policy maker’s focus. As it shows that absent the influence of energy costs which are more volatile than the broader market, price pressures are increasing. The 100-Day SMA at 1.3023 is providing resistance and a break above would leave the 1/28 high of 1.3326 as the next target.
The Pound has pushed past the 20-day SMA at 1.1450 and is threatening 1.4200 as it is finding support from increased optimism. The BoE’s successful purchase of Gilts has helped lower borrowing cost and is expected to help spur lending to business and consumers. Expect more initiates to be forthcoming as Prime Minister Gordon Brown pledged that the recent G-20 meeting will produce results including global regulation to ensure the recent problems don’t repeat themselves. Meanwhile, Rightmove Home prices remained near record low levels as they increased 0.9% in March which signals that the housing market is far from recovering which could limit bullish sentiment.
A pick up n risk appetite in Asian and European trading sessions has led to dollar weakness. U.S. futures are pointing toward a higher open which could lead to continued dollar bearish sentiment. Net Long-term TIC flows are expected to have increased to 45.0 billion from 34.8 billion which could spark bullish sentiment as it will demonstrate the continued appetite for dollar denominated assets. Additionally, industrial production in the U.S. is forecasted to have fallen by another 1.3% following a 1.8% decline in January. The drop in activity will push out expectations for a U.S. recovery and could weigh on equity markets adding potential greenback support. Yet, Fed Chairman’s Ben Bernanke’s prediction in his 60 minutes interview last night that the recession will end by 2010 may overshadow the data releases and sustain support for U.S. equities. Another potential negative dollar factor could be the increasing speculation that the Fed will start to increase money supply after the success in the U.K..
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Forex Trading Weekly Forecast - 03.16.09
To discuss this report contact John Rivera Currency Analyst: jrivera@fxcm.com
