As is usual for the first one
of the month, this is set up to be a busy week for economic activity that can
affect the Foreign Exchange markets.
Already, this morning, there
is the news that the Chinese official Manufacturing Purchasing Managers’ Index
(PMI) has fallen slightly. This was in line with expectations but confirms the
softening of Chinese economic growth.
Tomorrow, Tuesday, albeit at
03:30 GMT, in other words when we will be in slumberland, the Reserve Bank of
Australia (RBA) will announce its interest rate decision. The bank would like
to see a devaluation of the Aussie dollar and this would normally tend to
indicate a bias towards reducing rates, but Australia has a problem with
inflation, in particular housing inflation and this will militate against such
a move. They have been attempting to talk down the currency and this is most
likely to continue.
Wednesday sees ADP payroll
figures for the USA .
This private company attempts each month to use its own databases to anticipate
the official Non-Farm Payrolls number, which is closely watched by all. Sometimes
they are more accurate in this than at other times. Last month showed a
sizeable discrepancy.
Both the European Central
Bank and the Bank of England will be heard from on Thursday and then on Friday
we will have the US Non Farm Payroll report, which is the big daddy of
potential market movers each month. The Australian RBA will also make its
monetary policy statement on Friday.
Euro reaches for a significant indicator
The Single Currency (EURUSD)
is reaching for the 200 Day Simple Moving Average (SMA), which is a Technical
Analysis indicator that is respected by a great many market participants. At
the same time it is on the cusp of establishing a downward trend which, as
always, is characterised by lower highs and lower lows.
The ECB meeting on Thursday
could have a big bearing on the continuation or otherwise of this development.
Inflation in the Euro zone is still very low, and the dread prospect of
deflation coming into being must be playing on the minds of the members of the ECB
Governing Council. Unemployment also, even if stable, is also high, at around
12%. We have already seen a surprise reduction in rates at a recent monthly
meeting, last November. Will this be the case again, or will the Central Bank
take other measures to attempt to raise the inflation level? If they do
anything of this sort it can be expected to tend towards causing a weakening of
the Common Currency.
Certainly, as seen in the
daily chart above, the market could be pricing in something of the sort. Our
preferred way of playing this is to be short the GBPUSD pair, as the EURUSD
instrument tends to range rather than to trend in the medium to long term,
while Cable (GBPUSD), moves in sympathy with the Euro, at least quite a lot of
the time.
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