With the impending ECB meeting and conference (thereafter) and NFP out of the US, the FX market is gearing itself ahead of the 4th July holiday tomorrow. While I am not expecting any fireworks from either, I do expect Gov. Draghi to comment on jobs, inflation, interest rates and finally the “strength” of the EUR and perhaps its implications on the Eurozone in general. While it is rare to actually come out and say it out loud, i do nevertheless think there will be some reference to the FX rate and what it implies. For this reason and this reason alone, I think the FX market will be looking to BUY the $ vs the € and the £. I have stated previously I thought it was too early to do this, now I am thinking (especially today and US holiday tomorrow) there will be profit taking today and squaring of positions. In other words I see EUR/USD and GBP/USD going south (EUR/GBP slightly weaker).
I am not shifting stance here. As many traders will agree any US holiday generally means volumes are down and currencies generally trade sideways. There will be many traders squaring up and locking any profit they have away allowing themselves respite and a chance to enjoy the long weekend (hey we traders are human after all). EUR/£ 1.3660, appears to be ready for a correction perhaps down to the figure, GBP/USD 1.7160 also correcting down to the figure, leaving EUR/GBP pretty much where it is, 0.7960 or slightly weaker to around 0.7975/0.8000 area.
Momentum still strong in EUR/GBP and the expectation is that GBP will continue to make advancements ag the EUR given the better economic growth seen in the UK. Having said that the market has had a pretty decent move over the past 48 hours so some kind of reversal is generally always welcome and expected (in some way). I still recommend (as an importer) if you are in a position that you need to hedge, you would be well advised to do at least 25% now and lock in these favourable rates.
Overnight, Dovish RBA Gov. Stevens resumes talking the currency down. Speaking this morning in Hobart, Governor Stevens unexpectedly spoke at length on the economy and monetary policy. His main message was that the RBA was comfortable with keeping rates steady for an extended period, while he resumed talking the exchange rate down, warning of a “significant” fall as he made the most expansive comments on the currency. AUD/USD fell from 0.9445 to 0.9360 after the comments. This is a lesson for all CB Governors. Sometimes you need to come out and SAY IT. Not to talk in riddles, just come out and say, hey our currency is to weak/strong and something needs to be done. The market will in turn do that for you. The ECB and Gov. Draghi should say just that. The EUR will collapse and save him the trouble.
I read a great article this morning in the Telegraph newspaper regarding an interview with FED Gov. Yellen and interest rates. Here is the link http://www.telegraph.co.uk/finance/economics/10941966/Janet-Yellen-interest-rates-the-wrong-tool-to-address-financial-stability-risks.html
This morning Nationwide revealed house prices rising at fastest pace in 27 years. You know what, forget about raising interest rates, instead drop the amount a bank can loan you against your salary (currently 4x), stop cheap rates, and most of all require a minimum of 50% deposit. JOB DONE!!! yes there are certain people who will still be able to afford that, but on the whole how many really. That will stop things in their tracks and slow this housing bubble in one swoop of the wand. Will never happen of course but hey at least when Gov Carney reads my blog he will think…that’s not a bad idea…
Have a great day ahead and good luck