Edit @ 9:45 GMT: Unemployment
in the UK
has registered a sharp drop, causing the GBPUSD pair to resume its upward
trajectory.
The Australian Consumer Price Index (CPI), which measures inflation and which was released just after midnight GMT last night, reminds us of the general relationship between a country’s currency and the rate of inflation. While the purchasing power of a unit of currency loses its buying power when inflation is rising, its value relative to other Forex units tends to increase. This is because high inflation allows for an increase in interest rates and this attracts the attention of the Carry Trade, those investors who borrow in a low interest country so that they can make loans in a high interest rate one, and make a profit on the difference.
That is why the Aussie rose across the board after the larger than
expected rise in inflation that was announced by the Australian authorities last
night (GMT).
Currencies waiting to move
Yesterday was a quiet day in the Forex markets, perhaps as a consequence
of the holiday for Martin Luther King Day in the US on Monday and the fact that
there was a dearth of announcements of the type that is calculated to move the
market.
The Aussie, Kiwi, Yen and Euro against the US dollar, and the Aussie
against the Kiwi, are all poised to continue a trend, in the sense that they
are aiming to establish higher highs to go with higher lows in the case of an
uptrend, or the opposite where the already established direction is down. We
are waiting to capitalise on this state of affairs in each case, where we do
not hold positions already.
The reaction to the inflation figures in Oz has not materially changed
that situation. The rise in the AUDUSD pair, for example, still constitutes no
more than a retrace in a dominant downward trend.
The British pound against the US dollar and the Kiwi against the same
unit are in a state of sideways movement. Cable (GBPUSD) is deciding whether to
continue its uptrend or to make a possible turn, as alluded to here. The minutes of
the Bank of England and UK
employment figures, due for release later today, may have a bearing on what
happens in this regard.
In all cases we must watch and wait.
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