JOIN OUR MAILING LIST
Blog


2013-11-08
Forex review


Mario Draghi unveils an "anti-tank" weapon to commit the real possibility of Deflation. In a shock move yesterday the president of the European Central bank revealed his plan and reduced interest rates to 0.25% down from 0.5%. During the preceding conference he added that it is well within the realms of possibility that this rate could be decreased even further. The ECB is "technically ready" to reduce the discount rate to below zero if necessary. The governing council are all in agreement that this move is the only way to go, opinions differed as to when would be best to reduce rates, but on the whole the decision was widely accepted as the only method to impact the impending deflationary doom. Which still hangs like the sword of Damacles above the twin towers in Frankfurt. 

Mr Draghi still has the bond buying programme, LTRO and various other weapons within his armoury to stave off the deflation trap. All major currencies rallied against the single currency following the move, with EUR/USD taking over a 1% hit almost immediately and EUR/GBP clocked up very similar losses.  

Further news from the eurozone sees Ireland cleared for a bail out exit. Three years after going to the ECB, cap in hand, Ireland has been got the green light to go it alone and will be the first country to exit the bailout programme, Ireland has met all major targets and will complete the programme by the end of the year. 

As expected all things remained the same closer to home with the BoE's rate announcement still sitting at 0.5%. Mark Carney has pledged not to raise interest rates until unemployment falls below 7%, a target the Bank of England expects to be achieved in 2016. Dame DeAnne Julius, founding MPC member, has suggested that a raise could occur in 2014, when asked about the unemployment target said, "It's more likely to happen in the middle or towards the end of next year than it is in late 2016". 

In the US GDP data was improved at 2.8%, a revised rate up from 2%. It is widely accepted that the growth rate is unlikely to speed up the taper programme. The problem of dwindling demand is still the pertinent issue. "To be sure, 2.8% growth looks strong. But the more fundamental and longer-term issue is consumers are still unable to release their pent-up demand since income gains remain so paltry." Kathy Bostjancic Director of macroeconomic analysis for the conference board of New York.

Continuing from the wage growth factor in the US president Obama has supported the bill to push for a $10.10 minimum wage, if passed, this will be implemented over the course of the next two years and shows a significant movement from the current rate of $7.25 per hour. 

Data from China sees overseas shipments increasing 5.6% in October from the previous year, import gains 7.6% also accelerated all helping to sustain an economic recovery which began last quarter. "China's export numbers suggest some although not yet decisive improvement in global demand momentum," says Louis Kuijs. 

India saw significant losses in asian currencies yesterday following increased fear around the FED outlook as overseas investors reduce their Indian holdings to stave of uncertainty from US taper impact.  
Growth trends in both Australia and Russia have been slashed. The RBA is keeping a rate cut firmly on the table and is ready to act should economic activity require additional support, it almost definitely will, given the substantial fall in mining investment. Vladimir Putin is having a tough time in the first official admission that their growth model is not working. The forecast was 4.3% now reduced to 2.5% to 2030. Russia warned that growth would lag behind the global average for the next 16 years.

Today offers another busy day with the EU trade balance and current account already released and data was positive. The afternoon is Unemployment based with  the US Non-farm payrolls and Unemployment rate promising swings

Thank you CM Trading!!


Back Back to top

Forex Risk Warning